Competitors Positioning To Move Onto Fee-Based Advisors Turf
If you think the fee-based advisory arena is crowded now, just wait a few years!
That was basically the message that Scott MacKillop delivered at a session here at the Success Forum of the Financial Planning Association.
MacKillop, president of Evergreen, Colo.-based Trivium Consulting, LLC, telegraphed his message for planners in the audience in his presentations title: “How banks, CPAs and wirehouses will vie for your clients.”
A number of trends are driving these channels to the fee-based model, he said. One of these is the fact that revenues from commissions have declined dramatically, and this is what is pushing full-service brokers at wirehouses to look at the independent financial advisor model.
Another trend, he said, is the commoditization of product. “You cant compete based on the product you offer anymore,” he explained, “because you can pretty much get anything you want from anyone.”
The breakdown of traditional boundaries among financial services is also pushing change, MacKillop said. Evidence of this is in the Gramm-Leach-Bliley Act of 1999, in laws that permit accountants to provide advice, in American Express buying accounting firms, and in Schwab becoming the 15th largest mutual fund family, among many other trends.
Further, he said, the affluent market is the target of all these different sectors. And while there is $17 trillion in investable assets spread over 108 million households in the U.S., according to MacKillop, 45% of these assets belong to the 4.3% sliver of households that have between $1 million and $5 million in investable assets.
This makes for fierce competition, and it is the market everyone is fighting for, he said. In this battle, independent financial advisors service 25% of the affluent market, while full service stockbrokers service 43%. But surveys show, however, that IFAs fear other IFAs most, and then full service brokers, he said.
In looking at the competition, MacKillop outlined some reasons why IFAs should be concerned about wirehouse brokers. He said that 60,000 wirehouse brokers became “financial consultants overnight” and their companies are providing them with incentives to get planning credentials.
These companies are also plowing large amounts of money into technology platforms to support their consultants and improve efficiency, he said. They are also offering a wide variety of products that include separate accounts, mutual funds, stocks and bonds.
In 2001, MacKillop said, fee-based assets were 15% of total assets at the wirehouses, and that percentage is expected to grow rapidly in the coming years.
As for competition from CPAs, MacKillop said a significant number are already providing financial planning and/or investment advice. In fact, he said, 90,000 AICPA members (27%) are planners and some 6,300 CPAs hold the CFP designation.
These numbers will increase, MacKillop said, and in three years almost 50% of CPAs will be providing financial services, up from 17% now.
Building on the trust they have with investors, and particularly small business owners, CPAs are pursuing a number of strategies to enter the financial services business. They are not only building capabilities internally, MacKillop said, but they are buying practices, developing formal strategic alliances and working with other professionals on a case-by-case basis.