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The Competition Is Gaining on You

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Do you remember the research reports released late last year forecasting small independent planners’ demise now that full-service brokers, banks, and insurance companies are invading the advisory business? Those reports are probably still lying around your office somewhere, but you haven’t revisited them lately because maybe you consider them to be yesterday’s news. Don’t be fooled. Financial services companies are still morphing into advice givers, and the competition is heating up.

In January, we wrote about those reports–one by Cerulli Associates detailing the full-service brokerages’ competitive moves into the advice arena, and two others by Undiscovered Managers in Dallas. The first, released in late 1999 by Undiscovered Managers, said the planning business was on the brink of transformation and that small planners were at risk of being suffocated by larger competitors. Then in 2000, Undiscovered Managers released a follow-up report that said, among other things, that small planners could survive by specializing in a niche. Our reporters found a mixed bag of reactions to these reports, with most planners pooh-poohing the notion that they faced any imminent danger. There’s also been a lot of chatter about these controversial reports at industry conferences. At one event, I heard planners say they’re not worried because brokers, banks, insurers, and CPAs are going after a different segment of the wealthy clientele. That’s just one argument, and it certainly can be debated.

With all of the warnings and predictions about increased competition, the majority of planners still believe they are invincible. “I don’t think that advisors do any meaningful competitive analysis,” says Mark Tibergien, Seattle-based director of business succession services at Moss Adams LLP. He says independent planners should be asking themselves, are they aware of who’s competing in their local community? And are they doing anything to differentiate themselves? Tibergien believes the majority of planners aren’t adequately assessing the answer to either question. “I hear every week that [an advisor] has lost a client to somebody else–another planner, Schwab, or a bank,” he says. “Advisors tend to dismiss insurance companies and banks as either product pushers or inferior managers. And so that tends to be their defense, to disrespect their competition. And I think that’s a mistake.”

Granted, most small planning firms don’t have time to keep tabs on what the competition is up to–and that’s assuming they even recognize who their opponents are. Most planning firms spend the bulk of their time helping clients–which they should do–and in dealing with internal business issues. “Advisors should be conscious of what banks, brokers, and insurers are doing,” says Chip Roame, managing principal of Tiburon Strategic Advisors, a research firm in Tiburon, California. “Advisors will do well to have one eye on their competitors, but still both eyes on their clients.”

Who’s Making a Move?

That’s what this new monthly column will help advisors do–peek into the moves that banks, insurers, brokers, wirehouses, and CPAs are making in the advice business. That may include personnel changes, a strategic acquisition, or maybe a new product or service that’s being offered. I’ll also cover innovative moves being made by planning firms to attract and serve upscale clients. I’ll talk to as many financial services executives as possible to uncover their strategies for capturing America’s wealthy.

For instance, did you hear that Kip Condron recently left his post as president and COO of Mellon Financial to be CEO of AXA Financial? On its face, this news may seem insignificant to your planning practice. But take a look at how these two financial services companies have been changing to break into the advisory business. Pittsburgh-based Mellon has been making moves into the wealth management market for years, and even changed its name from Mellon Bank to Mellon Financial to reflect a new business focus. AXA Financial, part of the global AXA Group, changed its name in 1999 from The Equitable Companies to reflect its transformation from insurance to investment management. Indeed, Tibergien says one of the hottest trends among large insurance companies is training their agents to be wealth managers, and even changing their titles to reflect that. Last November, AXA Financial joined with Grant Thornton LLP to create Grant Thornton Advisors, so it could serve clients’ tax, estate, and financial planning needs in one tidy package.

Industry executives say Condron left as head of Mellon’s asset management to be a CEO in his own right. But Beth Morrow, senior industry analyst for financial services at Ernst & Young in New York, says the move is more indicative of a larger trend. Mellon, like other banks and insurance companies, is using its deep pockets to get into wealth management by “buying distribution [through acquisitions], and buying people” who have the needed expertise.

It’s not just the large banks that planners should worry about. Advisors’ most formidable competitors could be the smaller banks that are also on a buying spree. “Community banks are buying advisory firms and merging them in,” Tibergien says, “and they will be able to combine the high-touch relationship with the advisor with the capital, product, and resources of the bank.”

Breakneck Pace

Just take a gander at what Jim Eads, president of First Market Investments, is up to these days. The head of the investing arm of First Market Bank, a $600 million community lender in Richmond, Virginia, says he is “breaking [his] neck to get us into the trust, insurance, investment, and advisory businesses.” The bank recently launched a trust company, First Market Trust, and recently became a licensed RIA when it launched First Market Advisors.

Eads says he recently chatted with an executive at one of the big local insurance companies about a sales partnership with the bank and was shocked to find out that “only one quarter of [the insurance company's products] had to do with insurance. They have a trust company, mutual funds, investment advisory services, and wrap accounts,” he says. “The lines are just so blurry out there. It’s like we are all growing into a homogeneous business.”

Of course, you have to keep an eye on the bigger fish as well. Take Legg Mason, the Baltimore-based brokerage firm. It recently paid $682 million in cash for the privately owned wealth management firm, Private Asset Management in Naples, Florida, which has $8 billion in assets under management. Legg Mason’s Chairman and CEO, Raymond Mason, notes that the acquisition expands the regional broker’s footprint into the highly desirable Southeast including Florida. Private Asset Manage-ment will help Legg Mason fulfill its “strategic priority to be tops in wealth management,” says Mason.

Ernst & Young’s Morrow says independent advisors’ survival isn’t at risk because “the [advisory] market is growing too much.” She says it’s imperative for advisors to keep track of “which institutions will play,” and how they restructure their businesses. “I’m not sure that either [the advisor, bank, insurer, CPA, wirehouse, or broker] is in the catbird seat as yet,” Morrow says.

On the Lookout

Some advisors have taken consultants’ warnings and predictions to heart, and are keeping a closer watch on competitors. Some have even set out to change the way they do business. Look at Mark Carruthers, a CFP with Financial Horizons in Garnerville, New York. He realizes that “local banks have become our biggest competitors.” His one-person shop is up against Provident Bank, which has 11 branches in nearby Rockland and Orange Counties. The bank has gone beyond its core offering of residential mortgages to annuities and disability and life insurance. “Everybody and their brother is getting involved in comprehensive planning,” he says.

Planner Sam Hull with fee-only Northstar Financial Planning in Bedford, New Hampshire, is going head to head with such marquee bank names as FleetBoston. “The most significant area of competition is the newly resurgent bank trust divisions,” he says. “They have aggressive and active [advisory] programs that are nibbling away at my business. My market is strictly high-net-worth [clients] with $4 to $5 million [in assets] and that’s who bank trust departments are looking at.” Hull says banks like FleetBoston are enticing clients with bundled services and even free tickets to sporting events. FleetBoston lured away two of Hull’s asset management and planning clients.

Hull says client referrals from CPAs have dwindled as well, and he suspects the CPAs are servicing the clients themselves.

Hull says he believes the Undiscovered Managers reports, which were conducted by 10 industry experts led by UM President Mark Hurley, are on target. “I have taken steps to develop a niche.” Hull says he’s doing his best to steer clear of “relying strictly on asset management,” because that’s where he believes the banks are gaining the upper hand.

Are You In Denial?

Tom Orecchio, principal with Greenbaum & Orecchio in Oradell, New Jersey, also believes the Cerulli and UM reports have merit. “The greatest competition is coming from the banks and brokerage firms,” he says. “They are [becoming] fee-based, with a focus on process rather than product. The large banks and brokerage firms are ramping up their business, and the larger service providers [wirehouses] are ramping down to the less wealthy.”

At a recent NAPFA conference, Orecchio says he heard planners say competition has never been an issue for them. “I think people are in denial,” he says.

When you get a chance, take a look around your community and see who’s encroaching on your turf. It doesn’t have to be a big research project. Take a stroll into local bank branches and pick up their promotional materials. Or surf bank, insurance, broker, or CPA Web sites. And ask your clients, prospects, and referral sources who they’ve been talking to about advice. Then check out the latest news right here.


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