Fifty-eight percent of the conference’s attendees said that offering holistic wealth management services to their clients, including services like estate planning, tax planning and private banking, is the most important factor in giving them pricing power in the market.
“A Cerulli report showed that advisors are now typically offering up to eight distinct services to their client for their asset management fee,” said Garcia. “Compression is being painted with this broad stroke, but it’s happening everywhere else in the industry.”
Business growth is being driven by such value-added services, according to the survey, in which 74 percent said that they had grown their business by offering tax planning services.
Other value-added services stimulating business growth included alternative investments, philanthropic planning and private banking solutions.
“We may see some margin compression, where profitability is reduced at the end of the day as advisors add talent, expertise and capabilities,” said Garcia. “They’re certainly adding expenses to their businesses, but we’ve seen three consecutive years of record average operating profits for RIAs in the industry. Some of that is due to the run up in financial markets. A rising tide lifts all boats.”
Advisors at Pershing’s summit were feeling pressure from the lack of youth in the advisory profession. In the survey, 36 percent of the respondents indicated that hiring and developing new talent would be the biggest challenge for their business in 2018.
Currently, academic and industry financial planning programs are not producing enough new advisors to account for the rate of attrition and retirement in the industry, he said.
The industry is poised to lose between 6,000 and 10,000 advisors a year in the near future, said Garcia, and must find ways to serve an expanding and more diverse client base.
“When you look at the next generations and you ask them why they didn’t consider a career in financial services, their three main answers are: ‘I didn’t study finance,’ ‘I’m not interested in selling,’ and ‘the image of the industry was tarnished by the financial crisis,’” he said. “They see the image in Hollywood movies. ... They aren’t aware that this industry provides a healthy income [and] the ability to impact the lives of others, ... nurture an individual’s curiosity and provide great intellectual stimulation.”