3. The Hybrid. This is when an advisor relies on third parties to provide asset allocation research and to vet products but still maintains final say over how client accounts are managed. The upside to this approach is that it’s a way to create a bit more scale and to streamline processes, while at the same time preserving some level of differentiation, since the advisor has a hands-on role in portfolio construction. But it does present a potential Goldilocks conundrum, with some, in an attempt to capture a bit of both worlds, potentially struggling to find a mix that’s “just right.” As a result, an advisor could get caught in between, causing clients to question the value they bring.
The trade-off between differentiation and efficiency is crucial, and whatever approach an advisor chooses will naturally depend on a host of considerations, including what type client they wish to serve and what services beyond wealth management are core to their value proposition.
But the differences between the three models illustrate the degree to which advisors will have to decide whether they want to emphasize hands-on customization and differentiation, maximize efficiency and scale or pursue something in between.
Independent firms, meanwhile, will need to ensure they can support each of these models and, more importantly, be capable of seamlessly transitioning advisors from one to another if necessary—regardless of what happens to the DOL rule itself.
Timothy Stinson is national sales manager for wealth management and advisory products and services at Cetera Financial Group, a leading network of independent broker-dealer firms.