Back in the day when individual investors bought stocks and bonds instead of packaged solutions like mutual funds and ETFs, I knew an investment analyst in Seattle who looked at things in a different way. He looked at companies currently out of favor with the investing public, assessed their management, culture and market, then took a long view to make investing decisions.
The reps who worked for this particular broker-dealer adored the man because he always made them look good with their clients. I dubbed this talented strategist “Conan.” Now when I hear an industry pundit spout conventional wisdom, I channel Conan the Contrarian. I ask myself, “What would Conan do (WWCD)?”
Let’s examine some common assumptions in the advisory industry in light of the facts. Among the beliefs in circulation:
Advisors are reducing their fees.
Young employees lack a work ethic.
Robos will make it difficult for advisors to compete.
The industry will benefit from a huge generational transfer of wealth.
WWCD? Let’s challenge conventional wisdom, then act with the insight gained from analysis.
Advisors Are Reducing Their Fees
While a number of advisors claim to be experiencing fee compression, the top performing advisory firms have increased their fees by five to 10 basis points in each client bracket.
Firms experiencing the most pressure are those that tie their value proposition to investment performance. Some wealth management firms have had difficult conversations in the past year with clients experiencing sub-5% returns.
Firms that have raised their fees claim they have had little attrition because they have been able to demonstrate value beyond the investing relationship and even beyond the basics of financial planning. They may be giving their clients unique access to private banking or alternative investments, or they may have created a community of clients others want to be a part of.
As we know from other industries that have been commoditized (think coffee, retail grocery, medicine, tax accounting), those who command a premium are those who deliver a premium experience and are perceived as offering more value. Creating this value rests on your firm.
Young Employees Lack Work Ethic
Industry elders claim that young people do not work as hard as they do. Advisors born in the baby boom era tend to value motion over movement and to equate time in the office with hard work.
Gen X and Y employees reject the illusion of industriousness created by their forerunners in a quest for a work-life balance that allows time to pursue other interests and to devote to important relationships. They ask bosses to evaluate them on output, not input — a difficult mindset for firm founders whose blood, sweat and tears created the advisory business we know today.
Over the past couple of years, a number of advisory firms have transferred to the next generation with little fanfare and minimal disruption. Firms that seem to be growing the fastest, according to surveys done by InvestmentNews and FA Insight, have invested in better hiring, retention and development programs to ensure business continuity and strengthen growth.