When one considers the average 75 basis point management fee in the RIA industry, RIAs lost $530 million in potential revenue between Sept. 20 and Dec. 24, amounting to over $2 billion on an annualized basis, according to Nally. The burdens on advisors extend beyond finances, he said.
“I am sure all of you shift gear and are proactively communicating with clients,” said Nally. “I’m guessing phones are probably ringing off the hook. ... [Clients] need more of you and more of your time. They want to know that they are going to be OK. At the end of the day this is a people business and will always be a people business.”
Yet TD Ameritrade is investing in and exploring new technologies to help RIAs spend more time with their clients and create more efficient practices, said Nally, who added that the embrace of technology can help enhance the human elements of an advisory relationship. TD Ameritrade is focusing its efforts on technology that may help optimize or augment the client relationship in areas like virtual and augmented reality, artificial intelligence and machine learning, and 5G connectivity and the "internet of things."
Advisors must also be aware of the sustainability of their businesses, said Nally. While a lot of lip service has been paid within the industry to pursuing younger clients and creating business models more appropriate for high-earning, low-asset millennials, advisors continue to serve an aging clientele.
Two-thirds of RIA clients are over the age of 55, and one-third are over 65, said Nally.
“It’s critical that you are replacing those aging clients with new generations of clients,” said Nally. “What we actually see is that firms that serve younger generations grow much faster.”
Nally also pointed out that most advisors have not changed the way they’re charging clients for services, opting to use the traditional fee structure of a percentage of assets under management. Yet many firms are continually adding more services while not adjusting their billing rates, bundling all of their services under an AUM fee.
“There’s a downside to bundling services into one fee,” said Nally. “Clients may not fully understand the value that your firm is bringing to the table and all the things you’re doing on their behalf.”
Nally encouraged advisors to revisit their fees, and to consider an alternative fee structure that may be more appealing to younger clients.