Consult, Find a Niche, and Succeed

If you haven’t noticed, a number of reports have been released over the past few months providing a snapshot of the registered investment advisory and wealth management businesses. The reports offer a somewhat contradictory view of the RIA industry–like whether it’s growing or shrinking, and which types of firms pose the biggest competitive threat to advisors. It’s always a good idea for advisors to read through as many of these reports as possible, as they offer not only a basic overview of the industry, but often a soup-to-nuts lesson plan on how to take your business to the next level.

Take, for instance, studies from Cerulli Associates in Boston (www.cerulli.com) and CEG Worldwide in New York (www.cegworldwide.com). Both agree that competition remains one of the biggest challenges independent advisors face in growing their firms, and that advisors are fighting it out amid a more packed playing field and an unstable stock market. But as John Bowen, president of CEG, points out in “The Future of the Business,” poor markets are often a good omen for advisors. Advisors and stockbrokers rank unstable market performance as their third worst nightmare–right behind finding enough wealthy clients and generating enough asset growth, Bowen says. Yet investors tend to flock to advisors when the markets head south. This means “substantial new assets for advisors,” Bowen says, “provided that they understand the importance of client communication during these times.”

Bowen says advisory firms that embrace wealth management services on a “consultative basis,” rather than one based on pushing product, are better equipped to differentiate their firms, keep existing clients coming back, and bring new ones in, even during trying market times. CEG Worldwide found that the majority of advisors with net incomes greater than $150,000 use a consultative approach to wealth planning, while no advisor with less than $75,000 did so. CEG Worldwide surveyed 371 independent broker/dealer representatives, 204 RIAs, and 542 stockbrokers.

Whom Should Advisors Fear?

Cerulli’s “State of the Registered Investment Advisor Market” study, meanwhile, concludes that RIAs are giving marketing a more prominent role in their business plans. More firms, it says, are hiring a separate marketing staff or outsourcing the service. And when it comes to competition, RIAs are still reluctant to believe they have anything to fear from broker/dealers and banks–which may not be such a wise conviction, according to Cerulli. CEG’s Bowen also argues that it’s now more imperative than ever for advisors to take some cues from their B/D brethren in how to capture more assets.

After trailing RIAs in fee-based and wealth management services, B/Ds and bank trust departments may now be catching up, Cerulli says. And both B/Ds and banks have the ability to integrate banking and asset management services.

Cerulli found that while RIAs dismiss smaller banks’ asset management capabilities, they do envy lenders’ ability to be one-stop providers. But are affluent consumers really interested in getting all of their financial needs met at one place? “No,” answers a study by Click Communications, Inc. (www.itclicks.com), a strategic marketing firm in Chicago. In “The Motivations Behind the Money: Attitudes of Mass Affluent and High-Net-Worth Customers of Financial Services Providers,” Click found affluent clients prefer to spread their assets among providers. Karen Valdez, a Click marketing strategist, looked at individuals’ reactions to “mega-organizations that offer insurance, banking, asset management, and brokerage. What this survey revealed is that people are not interested in that. They are interested in minimizing their risk by diversifying across organizations.”