The Age Of Interdependence
Independent advisors have gradually continued to capture market share from brokers, but during recent years, some of those advisors have begun an evolutionary process in response to the above stimuli. This process has been fueled, in part, by access to new capital sources, including private-equity investors, traditional and non-traditional lenders, and even the public markets, each of which has taken note of the potential power inherent in the independent advisory space.
With this infusion of capital, some independent advisors have embraced the notion that while independence on behalf of clients is a good thing, too much independence can preclude them from addressing the modern competitive landscape and the increasing, changing demands of clients. Many of these forward-thinking advisors have chosen to join forces with other advisors, aggregators, and professionals to achieve scale at unprecedented levels among independent advisors, often through legal combinations such as mergers, acquisitions, aggregations, or consolidations.
With this scale comes the ability not only to compete with the large marketing budgets of the brokerage firms but also to add services beyond traditional investment and wealth-management services. Now, some of the largest SEC-registered investment advisors can also offer cash-management, lending, insurance, family-governance, and trustee services, along with previously exclusive private investments, tax, accounting, bill-pay, and even select life-enrichment offerings such as connections to elite healthcare, aviation, education, and travel providers.
To do this, they use their newly found scale, but they also embrace additional formal and informal partnerships with others, including other advisors and managers, aggregators, technology providers and platforms, and third-party service providers. Along the way, they shed their insular nature and begin to see other advisors more as allies or even partners than as competitors. They embrace deeper relationships with industry associations and the very communities in which they operate and that provide them their clients and employees. For interdependent advisors, action, advocacy, and philanthropy around financial literacy, diversity, and other societal issues have become as much about investing in their own current and future strength and sustainability as they are about changing the world for the better.
They have come to understand that they can best secure their futures, as well as the futures of all their stakeholders, only by shedding their former adherence to strict independence in favor of a stronger embrace of interdependence. In effect, the interdependent advisor has found a way to match and exceed the broker model while continuing to adhere to the fiduciary standard and serve primarily in an advisory capacity, not a sales capacity. As for the brokers, according to the IAA, “the number of SEC-registered investment advisers has been steadily increasing for many years, while the number of brokerage firms has been steadily declining.”
This trend is likely to continue, as consumers of financial advice continue to demand more services, more efficiently, and more effectively—and from advisors, not salespeople, who put clients first. In just a few years, there may be several fiduciary-based investment advisors that manage over $1 trillion. They will become the new leaders of the financial advice industry, and they will have the opportunity to bring it to new heights.
Charles Darwin said: “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” Traditional independent advisors and brokers that do not respond to the changes around them may continue to perform well for some time, but they must also realize that others are, in fact, responding to change. Interdependent advisors are now in a position to change the course of the entire financial advice industry—and with it, the very lives of the many who rely on them to secure their own futures.
Michael Nathanson is chair and chief executive officer of The Colony Group.