Winning The War

Having just returned from TD Waterhouse‚s annual conference for advisors, I find it encouraging to see how vibrant the advisory business is today. Virtually none of the several dozen advisors I spoke with was dissatisfied with the state of their business. At least if they were, they weren‚t saying so.

The extent to which advisors have won the war was spelled out for me after talking with one of the speakers at the conference, Chip Roame, who runs Tiburon Strategic Advisors. Net inflows to TD Waterhouse‚s retail arm equaled those of one of the nation‚s largest wirehouses, while net inflows to its advisory business were more than double that of the same wirehouse. About 70% of the new assets advisors affiliated with TD Waterhouse attracted last year came from large, national, full-service brokerage firms. And it should be noted that only a few years ago, TD Waterhouse was lagging behind Schwab Institutional and Fidelity Investments‚ RIA platform.

Increasingly, the advisory business is diverging in two separate directions. As revealed in this month‚s cover story on one of the profession‚s pioneers, Charlie Hughes, many solo practitioners are doing just fine financially but their businesses are fighting hard to handle the growth opportunities that exist. Folks like Hughes, who has $50 million under management, are earning a good living and they love their work.

A man who says he never wants to retire, Hughes nonetheless is considering hiring another CFP licensee to help keep track of all the changes affecting the business and to handle client overflow. It‚s a nice position to be in–a job you love and the lifestyle you want.

Firms like C.G. Hughes Company will continue to prosper, but they are unlikely to capitalize on the wave of baby boomers who are starting to demand financial advice as they approach retirement. The lion‚s share of that business is likely to be captured by larger independent firms with scale and other players in the advisory business.

One statistic that caught Roame‚s attention was that the average advisor in a survey he conducted spends $6,000 a year on marketing. The biggest problem most RIAs face, he believes, is that they don‚t market. But the reality is that many larger advisory firms have changed direction and now have one or more staffers on board devoted solely to bringing in new clients.

It‚s creating an increasingly noticeable growth-rate gap among advisors. Tom Bradley, president of TD Waterhouse‚s institutional business, sees that in the pattern of net new asset inflows into his custodial business. Most of it is coming from the larger advisory firms.

While there is a certain inevitability to this survival-of-the-fittest phenomenon, the gap doesn‚t have to be widening to the extent that it appears to be. Smaller firms can realize strong double-digit growth rates, even in years when a stock market tailwind isn‚t the driving factor behind their growth. But in addition to marketing, it requires better management of their business infrastructure and technology. Folks like Hughes are doing it, and there‚s no reason why anyone can‚t.

Right now, it‚s a matter of choice for many small advisors. But if the national accounting firms and brokerages ever get their act together (which admittedly is far from certain), it will become a matter of necessity.

Evan Simonoff, Editor-in-Chief