Advisory firms are also exploring newer ways to produce tax alpha, such as personalized indexing, Roth conversion strategies, optimal tax planning for small businesses, charitable giving strategies, and inter-generational wealth planning strategies.
3. Prepare For “The Great Wealth Transfer”
As has been well documented, the coming decades will bring significant wealth transfers, both between baby boomer clients and their millennial children, but also between spouses. McKinsey research indicates that 70% of women choose to switch financial advisors after the death of a male spouse.
Additionally, Cerulli research finds that 87% of children will leave their parents’ financial advisor after inheritance.
Much has been made of these coming wealth transfers, but many advisory firms still see wealth transfers as just a part of an estate plan, and not a dynamic opportunity to further deepen relationships with their clients.
Advisor practices that will prioritize and operationalize next-gen wealth planning have an opportunity to retain higher levels of assets. By actively embracing intra- and inter-generational wealth planning and operationalizing it during the client’s lifetime, as opposed to building it into an estate plan, advisors create additional opportunities for greater and more flexible total wealth transfers, while improving their chances of retention with spouses and next-generation clients.
Increase Efficiency
The three attributes above all require advisors to spend their time in the most valuable way possible: working with clients and potential clients. Assets per advisor is a critical metric to advisor and firm profitability. Advisors are well aware of the impact of higher net worth clients in achieving this goal. However, another way to drive higher assets per advisor is to pursue simplicity in the advisor service model, which drives firm efficiency and allows each advisor to serve additional clients.
The most successful – and profitable – advisors will find ways to spend more time on activities that differentiate them and drive their economic model. For example, model portfolios empower advisors to focus on client relationship needs by streamlining investment manager research, portfolio construction, and portfolio monitoring. The use of technology to automate tasks that are repeatable and scalable will also continue to drive efficiencies for advisors.
Looking Forward
2022 demonstrated the unpredictability of markets. The upshot, however, is that 2022 also highlighted how much investors value trusted financial advice.
Many more investors could benefit from high-quality financial advice. Vanguard research suggests that when done well, advisors can add significant value for clients through behavioral coaching, asset allocation, cost-effective implementation, rebalancing, and optimizing for taxes.
As we head into a new year with more uncertainty ahead, embrace opportunities to structure your practice around sustainable, long-term sources of value for your clients like true empathy, financial planning that helps clients meet their goals, and structural tax alpha to help clients keep as much of their returns as possible.
All investing is subject to risk, including the possible loss of the money you invest. Investments in bonds are subject to interest rate, credit, and inflation risk.
Ryan Barrows is the head of the RIA channel for Vanguard Financial Advisor Services. Prior to leading the RIA team, Ryan led Vanguard’s advice work outside the United States, including the establishment of Vanguard’s joint venture in China with Ant Financial. Previously, he led the team who developed and launched Vanguard’s direct-to-consumer business in the U.K. and worked in Vanguard’s Corporate Strategy Group.