We’re at a crossroads; we’re sitting on the precipice of disaster.
Robo-advisors are the best damn thing that’s ever happened to the industry.
Advisors are terrible marketers.
Most advisors are rusting at their desks.
If advisors don’t care about their clients, they’re living a lie and only renting clients.
The words are Ray Sclafani’s, and they were spoken in the first 10 minutes of an hours-long in-person interview that followed several telephone calls in which we discussed the current state of the advisory industry and its future. We also discussed why Sclafani founded his coaching firm, ClientWise, which now counts 32 coaches among its 51 employees, and what he’s learned over the years from providing services to advisors.
If you think Sclafani is simply a financial planning Cassandra who’s seeking self-serving publicity with incendiary comments about the industry and how its only salvation is, well, firms like his, think again. For one thing, he’s been conducting research among advisors to determine which business models succeed, and he’ll be making the findings of that comprehensive research available soon. His insights into the industry and individual advisors are based on actual data, not on his own firm’s value prop. He also remains a firm believer in the power of financial planning done right.
Moreover, ClientWise works with the whole panoply of advisor business models—from the wirehouses to independent broker-dealers to RIAs, on both the enterprise and individual levels. So advisors can profit from Sclafani’s perspective—honed through his years working with advisors at Alliance Bernstein, and in founding and building his firm with the guidance of some of the best minds in the advisor business, like Mark Tibergien, whom Sclafani said helped him write his first five-year strategic plan 10 years ago when he founded ClientWise and helped him update it five years later. Oh, and he has a book coming out in October, which he said is “all about framing,” meaning how advisors should think and talk about themselves, what they offer clients and how they present themselves to clients and the outside world.
Here are some additional quotes from that same lengthy conversation that occurred on a sunny day as summer approached in ClientWise’s expanding Westchester County offices.
The industry is ready for a change.
I believed then, and still do, that financial planning, that wealth management done well, is noble work affecting generations.
One advisor can change a community; 1,000 advisors can change the world.
Sclafani believes that the advisor business as we know it is on the brink of disaster.
He said that the industry is “on the precipice of extinction as an industry if we don’t get serious, get together as a group and decide how we’ll be framed in the future.” The differences among the generations—in how they prefer to run businesses, like advisory firms, and in how they prefer to work together—is only part of that challenge. Applying technology to financial advice in the guise of robo-advisors is a catalyst that will prompt change, he suggested.
Sclafani also challenges advisors’ deeply held beliefs about the overarching value of independence. Advisors’ focus on technical competence has brought the profession far, but competency alone won’t ensure its continued existence.
“We’re a bunch of smart people,” he said, but he thinks the choice at the crossroads is whether financial services professionals “will become a small cottage industry just serving the affluent, or will we rise up like the attorneys and the CPAs and other professionals and establish ourselves more broadly as an industry committed to serving all Americans?”
Of Robos and Bad Marketers
Sclafani believes that the rise of robo-advisors is “the best damn thing to happen to the industry because it’s a swift kick in the tail. There are millions of Americans who need advice and guidance, and it ain’t about 30 basis points; it’s about value and articulating advisors’ value.”
What’s needed to go forward, Sclafani said, is not formulating better elevator speeches, but rather conducting a “really serious introspection about the great work that advisors do and how they communicate it.”
A big part of the challenge is that while advisors “have a lot to say and a lot to offer, they’re terrible marketers.” He bemoans the infighting between the wirehouse and broker-dealer and RIA channels, and envisions a better approach in which they group together to say “Look, let’s all agree that financial planning really does matter; that proper, thoughtful, future-oriented planning really matters and that henceforth that should be the standard; that sales is dead; that we should partner [to] get rid of the evil that exists” in the industry.
On the marketing side, Sclafani said ClientWise has generated over 150,000 leads from its inbound marketing efforts over the past three years. How? “It’s all content marketing; listening to what the needs of advisors are and writing blogs and tips and tools” on the ClientWise website. Since it’s unlikely that those 150,000 leads “will spend $5,000 or $10,000” for a traditional year’s worth of coaching, the firm has built the ClientWise eXchange, where for a fraction of the cost of traditional coaching an advisor can use its content and a virtual coaching arrangement.
Then there’s social media. Advisors who “pay attention to Facebook and Twitter” are “playing it smart,” especially when it comes to attracting the next generation of clients who are “going to inherit all” of your current clients’ wealth, he said. “And who are they interacting with? People like themselves,” which is just one of the many reasons why it’s important for advisory firms to hire younger people. If you’re worried about the compliance issues around social media, he suggests advisors “look at Hearsay Social. I think Clara Shih is a genius,” he said of the social media marketing firm’s CEO.