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June 01, 2008 at 04:00 AM
With baby boomers moving into self-funded retirement, the advisor will need to become expert at risk analysis, risk management and financial life planning. There will also be some new faces at the table: career counselor, wellness and fitness expert, health care specialist and psychologist, among them. In wide-ranging interviews, more than a dozen industry thought leaders describe a dramatically changed role for the advisor — a shift that is already beginning to take place.
“New roles are emerging,” observes Chet Helck, president and COO of Raymond James Financial. “I think we are witnessing the emergence of a true profession.”
One thing is certain. More will be expected of the independent advisor than ever before — much more. With baby boomers moving into self-funded retirement, the advisor will need to become expert at risk analysis, risk management and financial life planning. There will also be some new faces at the table: career counselor, wellness and fitness expert, health care specialist and psychologist, among them.
“There’s a whole new set of benefits the advisor has to provide. Roles and responsibilities will broaden and deepen, requiring training in new areas as well as a different understanding of current areas,” notes Elvin Turner, managing director of Turner Consulting and an expert in retirement-related issues.
One predictor of what lies ahead: a new Fidelity Investments study that says a couple, age 65, retiring this year, will need about $225,000 to cover medical expenses in retirement. “That puts reps in the wellness business,” Turner adds.
Other trends that will emerge: The cost of advice will go down and advisors will no longer have preferred access to products. “I’d be shocked if any of today’s products exist in 30 years,” says Clifford Jack, chief distribution officer of Jackson National Life Insurance Co. and chairman of NAVA. Jack believes products in the future will be packaged to offset one another from a risk standpoint. As a result of bundling, prices will come down. “A lot of people say simplified products work well. In my mind, you want to go in the opposite direction: the most complex and sophisticated product you possibly can have with full transparency in a simplified package,” he says. “The advisor gets paid for that complexity.”
In an era where disclosure and transparency have become de rigueur, a likely next step could be the clear separation of the service and sales models — not unlike the separation of doctors and pharmacists in the 19th century. One professional dispenses advice, the other product.
“The service model will go much deeper than it ever has in the past. I believe it will be regarded as the very highest professional calling a person can aspire to,” says George Kinder, president and founder of the Kinder Institute, which trains advisors in financial life planning skills. “There cannot be a hint of sales in the model for it to be really successful. Transparency today is the closest we have come, but we will be going much, much further. And great salespeople who really know their product will never be supplanted, particularly with the complexity of the kinds of products that the industry will continue to offer and develop.”
Consolidation will continue at a rapid clip, experts say, causing two outcomes: the emergence of nimble niche players and, arguably, the demise of the solo practitioner.
“Risk management will be paramount in the future and it will cover both the business and personal levels. The result is the single-person practice, even the small group practice we know today, will likely vanish,” according to David Macchia, founder and president of Wealth2K, a software and media company focused on financial services. “I’d be surprised if there hadn’t been a significant winnowing process to occur before 10 years pass.”
One other factor driving the trend: While the solo practitioner represents the vast majority of registered rep practices today, most will migrate to a team model.
“It’s inevitable that solo practitioners become partners and partners become associates in a business,” says John Simmers, CEO of ING Advisors Network and a former chairman of the Financial Services Institute. “Where they were solo in the past, they’ve gravitated toward the technology phase and now they’re moving, interestingly to me, from entrepreneurs to technologists to more of a business manager. We’re already seeing signs of this. It’s not coming, it’s here.”
A New Business ModelGoing forward, according to experts, the team concept will dominate as independent advisors build businesses that look like law and accounting firms. The position of general manager is likely to emerge. Advisors will be classically trained in academic settings. And the role of sales assistant, a staple in practices today, is likely to diminish.
“What I see changing over the next 10 years and beyond is that firms will continue to refine their business strategies. Right now, a lot of reps have the same offering, the same target client, the same kind of staff. They’re all really kind of doing the same thing. One registered rep practice looks pretty much like another,” according to Rebecca Pomering, a principal at Moss Adams.
That will change as specialization comes to the fore.
“As the registered rep community gets larger, you will see firms merging that work with families in transition or who work with gay pilots or who work with a really targeted client base,” she adds. “And as firms’ strategies evolve, we’ll see roles and responsibilities change.”
Instead of sales assistants, independent practices will develop second-generation advisors. They will also add counselor-type positions as more and more clients retire.
“You need people who can help clients when a spouse dies, for example, or when you first enter retirement. You need someone who can say: ‘Let’s get you acclimated to managing your own finances. Let’s figure out who you are now that you’re not working any more.’ Psychologists and health-care specialists are going to be a huge need of the client base of the future,” says Pomering. “I don’t think the registered rep will be the first to add these positions. I think RIAs will be ahead of them. But they will have to do it to keep up with their clients’ needs.”
Turner says that reps are already sensing the “uneasiness” boomer clients are feeling as they face the retirement income challenge. He foresees a time when there could be “wellness advisors” who specialize in wellness and investment management.
“There could be a real change in teams over the years as the industry comes to grips with what boomers actually need,” he adds. “Boomers will continue to change the industry as they have done with every institution they’ve encountered.”
Laura Varas, a research partner with Financial Research Corp., says financial services firms are already beginning to ponder client-driven questions like: Are you going to be fulfilled in retirement? How will you spend your time? One firm, she says, is even studying the subject of depression in retirement.
“What we’re witnessing is the personalization of retirement. Retirement is on our shoulders now. That changes the work the advisor needs to do. Similarly, there is this continued pressure to become more holistic,” she says. “It’s tempting to think advisors will step in and solve these problems.”
Joe Deitch, CEO of Commonwealth Financial Network, expects the emerging independent advisor will have a resume that looks something like this: Marketable talents and specialties. Technical and technology expertise. Investment expert. Entrepreneur. Financial architect, meaning a mastery of the art and science of dealing with real people in the real world. Psychologist.
“What advisors bring to the table will have to evolve. People want someone who can help them navigate life. If this was merely all about technical expertise, it could be automated,” Deitch says. “But we’re talking about real people — not just with complicated decisions to make but with complicated lives and psychological and emotional considerations. We call it financial planning. But it’s really a life plan.
Role of Broker-DealerWith 5,200 independent broker-dealers in existence, it’s not a stretch to imagine far fewer in the future.
Bill Dwyer, president of LPL Financial, Independent Advisor Services, expects five to 10 top players to emerge along with boutiques that will become increasingly specialized.
Macchia agrees. “There are way too many broker-dealers and too few of those will be able to provide enough of a unique experience to justify their existence,” he says. “The larger and stronger firms will grow larger and stronger.”
