In dusting off our crystal ball, we thought of taking a prophetic approach to what lies ahead for our industry, attempting to answer such vexing questions as:
- Will equity indexed annuities be declared securities?
- Will advisors have any say as to their guilt or innocence when clients pursue arbitration?
- Will Merrill Lynch buy LPL, thereby confirming something advisors already believe, namely, that LPL is the Merrill Lynch of the independent channel?
Instead, we decided to focus on a few key trends that have cropped up over the past couple of years that we think will not only continue, but are likely to accelerate through 2010.
There has been a growing sameness in the technology broker/dealer firms are offering. For example, most provide standard technology platforms such as LaserFiche, WebOps, LaserApp, and consolidated client statements. A select few offer electronic signature, but this too will become commonplace over the next couple of years. It will soon be increasingly difficult for a broker/dealer to stand out based on technology alone. Those who do will be backing themselves into a corner, until they manage to come up with a different differentiator.
One very clear trend in technology has been the drop in costs. Increased competition in such areas as consolidated client statements will see costs fall even further. With the advent of outsourcing, smaller firms are now able to offer many of the same technological bells and whistles as their larger competitors.
Broker/dealers have caught the outsourcing wave as a way of lowering overhead while improving quality. When we use the term outsourcing, we’re not talking about telemarketers in India but, rather, finding homegrown sources for use on an as-needed basis, as opposed to hiring full-time staff. We’ve seen this trend first in technology, but now in outsourcing services and functions such as conference planning and implementation, compliance, commissions, and product due-diligence, all of which has resulted in enormous cost savings for B/Ds. In the past, the staff-to-rep ratio was a bragging point for many firms, but with the advent of outsourcing and improved technology, that statistic has been turned on its head. Now, high staff-to-rep ratios signify a broker/dealer lacking sufficient operational technology. The name of the game going forward is to run leanly and efficiently, with an aim at greater profitability and offering advisors more benefits and higher payouts, or both.
Some outstanding new developments have occurred in marketing by broker/dealers. While providing seminar platforms, Web site development, and print and online brochures are commonplace, firms are now helping advisors with target market penetration, typically with CPAs, attorneys, and health care professionals. Not only are firms helping reps network into these attractive market niches, some are providing advisors with qualified leads, as well as sending experienced marketing professionals into the field to make the initial contacts and solidify these potentially lucrative relationships.
For broker/dealers who’ve been beating the technology drum, taking things to the next level by helping advisors grow into specific market niches was an obvious next step in setting themselves apart in a crowded playing field. This is among the strongest trends for the near future. The investments B/Ds are making in this area can be expected to pay off handsomely in the form of dramatically increased sales for the advisor, which results in proportional profits for the broker/dealer.
One firm has dominated practice management for years, but several others have become active in this area of late, and it only makes sense that others will follow suit. The premise behind practice management is simple: By helping advisors run their offices more efficiently, broker/dealers free more of their advisors’ time to spend in front of prospects and clients, thus increasing their production. Broker/dealers are helping their representatives understand and apply technology in their offices, helping in hiring and training staff, business planning and implementation, and assisting with seminar and event planning. The goal of practice management is freeing up advisors’ time so they can either raise production by as much as 30%-40% or allow reps to decrease their golf handicaps down to five!
About four years ago, a couple of firms jumped on the succession planning bandwagon to only slight interest. Even recently, B/D executives wondered what the succession planning fuss is all about, saying they haven’t seen any groundswell of interest from advisors. However, as broker/dealer advisors age, the notion of a succession planning “boom” will become a matter not of if, but of when.