Advisors, Start Preparing Now for the Post-Boomer World

Moreover, established advisors who want to attract post-boomer clients along with younger advisors and support staff need to rewire their offering—or risk failing.

“It’s much more than being tech savvy. It’s understanding the difference in value systems and making sure your work environment is open to different types of dress codes, more flexible work hours and getting things done but maybe not in the office,” says Nally. “Research has shown people like to work with their peers. Advisors need to get on board with all this. You need to step outside the box and think about how you can give this market what they are looking for. If you continue doing what worked well in the baby boomer space, it’s going to be problematic.”

Young advisors and staff also put a high value on their personal lives—a factor that Herbers says business owners must recognize and accommodate.

“If you want to grow in this industry you have to change your mindset completely,” she adds. “People want to work with people who get them.” As evidence, Herbers points to two advisory firms she works with—both run by advisors in their 30s. “The two firms that are growing fastest of all my clients are these two firms. They are tapping into that next generation client and the reason they are getting them is not because of their age necessarily but because they have built companies with employees who have the same mentality that they do, that the client does.”

Advisors who don’t adapt risk leaving millions and millions of dollars on the table. “It’s a powerful shift,” says Herbers. “That shift is going to drive the future of the industry.”

Tech Innovation

Technological innovation will fundamentally change how the industry delivers and prices advice, according to Edelman, who foresees a “very disruptive environment” as things like artificial intelligence, robotics and three-dimensional printing become staples.

“What this means is that you are going to have in a relatively short time period the ability to obtain financial advice from a computer on the Internet,” says Edelman, who launched Edelman Online in January to position his firm at the forefront. Edelman Financial Services, started in 1986, has 20,000 clients, a rise of almost 200% since 2004. “Very few, if anyone, in the industry are paying attention to it in a meaningful way. We’re spending a huge amount of time on this. We are already offering investment management services online with no human intervention. We have several hundred accounts with hundreds of millions in assets under management. I don’t believe the industry is aware of how fast technology is going to change our profession.”

As for the here and now, technology is beginning to drive preferences in terms of what consumers want from their advisor and what advisors want from a corporate home.

“Technology is starting to matter in some pretty significant ways in terms of where people are going,” notes Michael Kitces, publisher of Kitces.com and a partner in Pinnacle Advisory Group in Columbia, Md. “You’re about to see the next edge of that over the next few years: consumers showing more preference for tech savvy advisors. As much as people are talking about that, it’s still the front edge. But it’s coming. At some point, the ability to use, adopt and implement technology is going to become a differentiator. Then it will become a minimum necessity.”

Also, he says, advances in software development and the ability of software to communicate with one another in a way that has never before been possible represent a “transformative” shift for the independent space.

“We’re clearly in a transition phase. Now independent software companies are often larger and better developed than proprietary solutions. It certainly increasingly means that working with a large firm is not about the integrated technology they bring to the table,” says Kitces. “It won’t blow up the wirehouse model but it will change a little bit of the value proposition of why you go there or why you stay there.”

Threats and Opportunities

What keeps Deena Katz up at night? A low-return environment she believes could last for the next 10 to 20 years, a hugely competitive landscape and the high cost of doing business.

“In this scenario, the advisor is going to make a lot less and have more issues with clients than we ever had. It was a lot easier for us in the ’90s when everything was popping. This will put pressure on fees and on commissions and on profitability,” says Katz, an associate professor at Texas Tech and chair of Coral Gables, Fla.-based Evensky & Katz, one of the nation’s first fee-only firms. “Today, there is a great deal of value in practices, but many people have an overblown idea of what that value is. With everything in play, many will have a hard time maintaining that equity value. A lot of practices will fade away.”

One of the things the independent sector lacks, according to Anthony, is a “creative roundtable,” a forum where industry observers could identify threats and how to prepare for them. Among Anthony’s concerns: a return on investment value proposition that, for advisors, is emotionally taxing and unsustainable; the failure of most independent advisors to offer “return on life” advice like a simple cash flow analysis; and an administrative overload that is just “killing” people.

When Anthony recently visited his own advisor for a fairly straightforward transaction, half of a conference table was filled with forms to fill out. “I asked how much time it took to put it together and he gave me the man hours,” says Anthony. “It was just absurd.”

Anthony has also begun researching what happens psychologically and emotionally around the cost of advice as baby boomers move into the distribution phase.

“It’s not an issue yet but I predict that within five years it will be huge. When you are in the distribution phase, you are clipping coupons. The price of everything matters,” he says. “And the industry is clueless about how to rearrange the furniture here. How long until the price of advice starts coming under the radar? Fees have been in the shadows for so long. What happens to this industry when people start asking? It ties back to value. If there’s no value provided beyond the management of a fund, you are in trouble.”

On a local level, Pershing Advisor Solutions CEO Mark Tibergien says he worries about the lack of business continuity that exists in the independent advisory world but he also has his eyes trained on the global stage. Currently 20% of Pershing’s advisory firm affiliates are located outside the U.S., a figure Tibergien would like to see grow to 40% or 50%.

“One issue I wrestle with is what industry trends portend for global growth. I’m pretty confident the U.S. market is going to be dynamic and there are signs the international market could be dynamic. Different regulatory regimes kind of change it up,” he says. “The uncertainty is how they will respond to a true independent advisory concept as opposed to a broker model.”

“Business is becoming global in so many ways where the U.S. is not an island and the U.K. is not an island. The whole transformation of the business is exciting and daunting,” Tibergien adds. “The question is: How will advisors serving wealthy individuals position themselves on the global stage? One thing we know is money is fluid and borders are porous. There are challenges. It’s a great business but it’s not without its heartburn.”