Like any other industry, a group of specialists also would emerge. These small firms would offer very high value-added services to their clients and would dominate niche market segments. Although they would be small relative to the size of dominant competitors, they would be very profitable organizations.

The majority of advisory businesses, however, would remain relatively generic providers of financial advice. While many, if not most, of these organizations would survive, they would suffer the most from the two forces reshaping the industry. Their operating margins would be crushed, their owners would have to work harder for less money, and they would have little or no enterprise value.

The key issue for advisory firms was to decide which group they hoped that their firm would eventually wind up in and to take the necessary actions to ensure this outcome. However, it would be very difficult to reposition an advisory firm after the combined effects of competition and technology were felt. Hence, the actions taken by owners over the next couple of years would largely decide the long-term destinies of their organizations.

So, three years into a 10-year cycle, what has happened?

Competition Intensifies

There have been hundreds of new entrants to the advisory business, including accounting firms, insurance companies and personal financial services companies. Some of the more notable entrants include:

Accounting firms-Nearly every major accounting firm has created a financial advisory unit or has acquired one. Fidelity signed an agreement with the AICPA to serve as the preferred vendor to accounting firms creating advisory units. Moss Adams acquired Financial Security Group in Seattle and has had great initial success in cross-selling advisory services to accounting clients. Plante and Moran's advisory unit is one of the largest and most successful advisory firms in Michigan. And 1st Global now offers a turnkey program (including personnel) that will allow nearly any accounting firm to create its own advisory unit almost overnight.

Insurance companies-Northwestern Mutual Life acquired the Frank Russell Co. and has converted its system of agents into the NML Financial Advisory Network. AXA has completely reengineered its advisory unit, offering independence in investment selection and requiring either a CFP or a CFA designation for a majority of its advisors.

Personal financial services companies-Both Charles Schwab and Fidelity have launched programs to offer advice to individuals through their extensive branch systems and have, in some locations, established "special" private client offices. H&R Block has refocused its business away from tax preparation to comprehensive financial advice. Venture capitalists have poured more than $100 million into MyCFO.com, a technology-driven financial advisory firm. Dozens of national and regional banks have created advisory units that cross-sell investment advice and products to traditional banking clients. Even E-Trade, an organization whose fundamental premise was to offer investors a cheaper and smarter way to invest their money on their own, has refocused its business on providing advice to consumers.

At the same time, several of the larger brokerages have also completely remade their advertising campaigns to make them appear as though they offer the same services as financial advisors. Relying on focus-group studies that have highlighted the importance of independent comprehensive advice, organizations such as Morgan Stanley are running advertisements that make it sound as though they are members of NAPFA.

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