Hurley: How will the relationship between advisors and custodians change?
Tibergien: The primary reason that custodians exist is to keep clients’ assets safe. A lot of value, but a highly commoditized business, which is causing every custodian to rethink their proposition.
Those with a retail orientation would rather bypass the intermediary and go direct to the client through a combination of digital solutions, low-cost people and an investment strategy. Others may try to be a superior provider of technology. Although we spent hundreds of millions of dollars a year on technology, the challenge [with relying on that strategy] is that technology in the advisor business is a complex proposition, and you have to be right.
BNY Mellon is an institutional firm, the largest custodian in the world. We have about $28 trillion of assets under custody and/or administration. Our clients are global, and we deal with every imaginable financial institution you can conceive of, including sovereigns. We are personally invested in our clients’ success. We think of ourselves first as a business solution provider with custody in our core.
My expectation is that custodians will probably start charging advisors directly like the old bank custodians did for a custody fee. That will probably come out of the fee that they charge to their clients and will be a cost to doing business.
Hurley: In every industry, at some point, either value-added goes up or fees go down. What will the winners do to address this?
Tibergien: In many ways what Jeff [Thomasson] has created at Oxford is really a pretty good vision for the future of this business. Focusing less on investment and more on value in life.
[Future winners] will have a more holistic orientation that thinks about the individual. It’s beyond picking the right funds or ETFs. It’s more about how people will make an impact with the money they have.
We also have to imagine what the next generation of wealthy people will look like. For example, it is a mistake to think that millennials will accumulate wealth primarily through inheritance. It’s an extraordinary insult to every millennial who’s in a well-paying job and is saving better than his or her parents ever did. How they live their lives and what they consider important likely will change, and being conscious of that is important.
Hurley: Go further on the profile of future clients of successful wealth managers.
Tibergien: Gen Xers are often ignored, which is a giant mistake. They may be the most cynical generation in the history of man, but they still are wealth accumulators and making
an impact.
Hurley: Such as serving in Iraq and Afghanistan?
Tibergien: Doing extraordinary things. They are caught between the boomers and the millennials. Boomers were terrible savers and subsequent generations are better savers.
They also will be more sophisticated about wealth. There is an educational role for advisors. They have a responsibility to convey to their community proper decisions, good decisions and choices, not just about investing. It’s about living in a way it makes sense.
Hurley: What role will “big data” play?
Tibergien: We have delivered advice based on static information, so big data will be a more powerful connector in how we provide not just wisdom but insight into individuals’ behaviors. It will be a real game-changer in the advisor business and potentially for a custodian like Pershing in delivering data that provides real insight into the behaviors of clients.
Hurley: Successful firms will have to go through a pretty robust transformation right at the point when most of the founders are getting old?
Tibergien: The founders have done their job. Just like the pioneers crossed the mountains and went over the rivers and through the woods, they didn’t necessarily build nice homes. They founded the communities. The next generation has the responsibility to create cities and towns and sewer systems and electricity and all of those other things that are critical to this business.
Hurley: Assuming that founders can let go.
Tibergien: Advisors are people, and voluntarily or involuntarily they’re letting go. It’s just a question of timing.
Hurley: Where do the banks fit in the industry’s future?
Tibergien: Larger financial institutions have a role to play, and I have a visceral reaction when people describe the RIAs as “independent.” I don’t know what that means. Ownership? Independent in the way in which they give advice? Independent of accountability or responsibility?
I certainly don’t view them as independent. I view them as professional buyers, not professional sellers. Professional selling organizations are product advocates. Professional buying organizations are client advocates. Either can work, and it doesn’t mean that they are not doing things in the best interest of the client. The question for the banks and the brokerage firms is whether they want to shift from being professional sellers to being professional buyers.
Hurley: And wealth manager brands?
Tibergien: Everyone today talks about “my education, credentials, smartness, people, price.” But those are just table stakes.
Brands have to evolve so they define why firms exist. Clients think in terms of “What’s the business’s expertise? Is it big, broad and deep in a way that it can help me?” We will see a shift away from the cult of personality to the culture of expertise.
Hurley: How do they do that?
Tibergien: Advisory firms should identify the top 25 clients that they want to replicate—not the richest clients, but what [ideally] all clients could look like—and their 15 to 20 characteristics, such as source of wealth, family structure, problems and challenges, demographics. Often a common pattern exists.
Hurley: If you owned a wealth manager, what would keep you up late at night?
Tibergien: Compliance risk. Wealth managers do not have command and control structures as good as those at broker-dealers. I would worry what my people are doing when I’m not looking as [my firm] becomes a much bigger company.
But implementing systematic controls causes people who are attracted to the business to chafe. This is part of the maturation of a business because reputational, financial and compliance are massive concerns.
For example, RIAs will not escape the implications of the Department of Labor’s fiduciary rule, something different than exists under the SEC. It implies that there’s going to be an extra level of compliance.
Hurley: What is the most remarkable change you see in the industry over the past 10 years?
Tibergien: The growth of advisory firms. I remember when it was a big deal to be a $10 million firm, then a $100 million firm, and now there are 350 firms over $1 billion.
Hurley: What’s going to be the most remarkable change in the future?
Tibergien: The flow of talent into this business. People will wake up to the fact that they are missing out on a truly great profession by not being here.
Hurley: Thank you very much.
Tibergien: Thank you.
Effie Guo contributed to this article.