These financial advisors are going to stand apart from their competition in a number of ways. Some will stand apart because of their investment performance. However, investment performance—provided it is within an acceptable range—is not going to be the biggest differentiator.
A growing number of financial advisors will leverage investment-based advanced planning solutions. These are often products and strategies that, aside from being investment products, have additional tax or planning functions. A good example of this is private placement life insurance.
Even with lower investment taxes, private placement life insurance for many high-net-worth individuals has proved to be amazingly powerful because of the effect of tax-free compounding. Furthermore, private placement life insurance can be structured so that the affluent investor never has to pay taxes, even when monies are taken out of the policy. Furthermore, with new private placement life insurance platforms, such as CGS Financial Solutions, funding requirements have come down, and financial advisors can use their own portfolios to manage the assets in the policies.
Intensifying efforts to create strategic partnerships with non-competing professionals is another way for financial advisors to differentiate themselves from their competitors. Without a federal estate tax, for instance, the practices of most private client lawyers are going to be severely pressured. While there are certain short-term big money possibilities for them, few will take advantage of these opportunities without some guidance. Financial advisors, who can provide appropriate insights and direction, will often receive a substantial number of new wealthy investment management clients.
The key to creating any strategic partnership with a center of influence remains developing a detailed understanding of the professional’s practice. Consequently, processes such as street-smart networking are essential.
A powerful way to support these efforts is to become a thought leader—a professional who is recognized as one of the most foremost experts in his or her field (e.g., investment management) and is able to monetize that position. Not being able to convert status into revenue means that the financial advisor is not a thought leader.
Very, very few financial advisors are capable of becoming thought leaders outside a pretty small circle. That circle can be a particular industry such as divorcees or athletes, or it can be a geographic target such as a particular city—but that is usually more than enough to help create a thriving practice with wealthy investors.
For most financial advisors, the key to becoming a thought leader is not content; it’s the ability to distribute content. According to extensive research, financial advisors who become thought leaders tend to do a good amount of presentations to groups of wealthy investor prospects as well as centers of influence.
Combining approaches is proving quite effective. A good example of this is talking to private client lawyers about private placement life insurance. It’s a financial product not many of them are familiar with or know much about. When they understand private placement life insurance, after they have some experience and are educated on how their high-net-worth clients and their practices can benefit, many of them become advocates for the solution and the financial advisors who brought it to them.
The Trump administration is going to create a set of conditions in which astute, forward-thinking, capable financial advisors will shine. The financial advisors will very likely be able to grow their assets under management at a faster rate than ever before.
The complication is that the amount of competition will also increase as more and more professionals provide investment management services. There’s a very good chance this will be the case with a percentage of high-caliber life insurance agents as the need for life insurance to pay estate taxes evaporates.
The most successful financial advisors will be able to distinguish themselves from their competitors. Unless they can deliver fairly consistent exceptional investment returns, other approaches are needed. Leveraging investment-based advanced planning solutions, such as private placement life insurance, is one way. Creating strategic partnerships with centers of influence is another. Becoming a thought leader is a third way. Optimally, financial advisors would use all three approaches in concert.
Russ Alan Prince is president of R.A. Prince & Assoc.