Three years ago, we published a research paper-The Future of the Financial Advisory Business and the Delivery of Advice to the Semi-Affluent-that predicted a series of sweeping changes to the advisory business over the next decade. Our prognostications in that report, and in a subsequent one published in September 2000, ignited a firestorm of controversy in the financial advisor community.

Part of this firestorm was due in no small part to our prediction that "the financial advisory industry's structure will be very different from that of today" facing advisory firms with three choices-seek economies of scale, specialize or continue to operate as a generic provider of financial advice. And the choices made then by advisors would largely determine the long-term profitability of their companies.

Our forecast held that by no later than 2009 and perhaps as early as 2006, the financial advisory business would mostly consist of three kinds of companies: a small number of very large, profitable firms; many small but very profitable specialty niche competitors; and a large group of small, marginally profitable advisory businesses that had little or no economic enterprise value.

An equal source of this controversy, however, was the failure of many-not all-journalists and industry experts who have written and/or commented about our research to actually read it. We are confident in this assertion because nearly every time that we were interviewed or participated in a panel about it, our first question to journalists or fellow panelists was to ask if they had read the document. This question usually caused a lengthy period of awkward silence, followed by an admission that they had "scanned it" or had "read the executive summary."

As a result, a series of misleading apocalyptic forecasts ("all small advisory firms will be out of business in a few years" or "there will only be a handful of advisory firms very soon") have been attributed to our report. A few recent articles have proclaimed that the research paper's forecasts have not been borne out by subsequent events.

Since it is now the third anniversary of the paper's publication, it is a good time to look back at what we actually predicted and what has happened since September 1999. It is important to remember, however, that all of our forecasts assumed a seven- to-ten-year horizon. Hence, this is only an early mid-term report.


Back in 1999, the advisory business had grown from what had been a cottage industry in the early 1980s to a major segment of the financial services business that controlled more than a trillion dollars of assets. The emergence of this young profession was driven by two factors. First, while many brokerages, banks and insurance companies offered financial advice to their clients, most of these organizations had a structural conflict of interest in the manner in which they provided this service. Relying on transaction-based compensation systems and not providing the broker or agent with independence in product selection often created a conflict between a client's best interests and their broker's or agent's interests.

The failure of independent advisors' largest competitors to re-engineer their mechanisms for delivering financial advice created a vacuum between what clients really wanted and what was available from these organizations. The financial advisory business filled that vacuum.

Second, the demand for financial advice exploded in the 1990s. The typical client of advisory businesses is the "millionaire next door," and the supply of such individuals grew nearly seven-fold during that decade. Hence, at the same time that large organizations were not delivering financial advice in the manner sought by clients, the demand for the service soared.

First « 1 2 3 4 5 6 7 8 » Next