No. 2: Competition Plays Into The Hands Of Independent Advisors
Advisors will continue to feel pressure not just from robo-advisors, but from offerings by companies like Vanguard, Schwab and TD Ameritrade that combine low-cost digital investment management with personalized financial advice via call banks of advisors.
Custodians, who still court advisors as key parts of their business, are now a formidable part of advisors’ competition, says Pace.
“They’re chasing the same consumer, investment advisors are under assault from multiple avenues of competition, and they’re going to have difficulty winning the fee battle,” says Pace.
Pace says that the continued momentum towards the fiduciary standard and fee compression will evaporate the assets of most broker-dealers and wipe out smaller brokers.
“There’s going to be consolidation; every time there’s a turn in this industry, it’s an opportunity,” Pace says. “This upheaval is good for advisors. The first order of business should be to dedicate as many advisors as they can to the front office, making their clients happy, seeking more referrals, crafting targeted marketing plans.”
No. 3: Move Towards A La Carte Services
In an a la carte fee model, advisors would charge different fees for different types and levels of service -- for example, a holistic financial plan would have a charge rather than the cost being absorbed in asset management fees. Investment and risk management would carry their own costs. Face-to-face meetings would also come with a specific fee.
The idea, says Pace, is to get out of the business of merely charging a flat percentage of a client’s AUM.
“If you don’t have an a la carte model plus a digital solution, you’re going to miss the boat with subsequent generations of clients,” says Pace. “They don’t want to have services and fees forced upon them; they’re by and large happier ordering off a menu and selecting the services that meet their needs and aspirations.”