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Client Focus, Organic Growth Crucial to Advisor Success: eMoney Summit

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Financial services as a whole is a “fragmented and confusing” industry, said Mike Durbin, president of Fidelity Wealth Technologies.

While Cerulli Associates estimates that, between 2008 and 2019, RIAs will maintain the greatest market share at 5.8%, the retail direct channel—TD Ameritrade, Schwab, Vanguard, Fidelity—is on their heels with 3.5%.

“We’ll see how that tailwind persists given the regulatory change, etc., but there’s clearly something there” said Durbin, speaking at the eMoney Advisor Summit Thursday to give attendees a high-level view of the state of the wealth management industry. 

Client-centric firms that can grow organically will be the winners, Durbin said.

He noted firms can support organic growth by building a young client base, clearly defining their customer value proposition, focusing on advisor productivity and segmenting their client and advisor base.

Firms need to get younger, he urged. The Alliance for RIAs found 80% of RIA clients and 72% of BD clients are 50 or older. PriceMetric found firms that have a substantial client base under the age of 45 are growing twice as fast as other firms.

Sanjiv Mirchandani, president of Fidelity Clearing and Custody Solutions, distilled value proposition into a formula, Durbin said. He defines customer value proposition as the functionality of a firm’s offering, plus the client experience, plus the firm’s brand reputation, all divided by the price of the offering.

Regarding advisor productivity, Durbin said, “this still largely is a cottage industry of really good artisans that haven’t really embraced the clear best practices that have emerged.”

Firms should segment their client base and their advisor base by their potential and fit, said Durbin. Those who are a good fit but with lower potential don’t need a lot of resources or service, while those with potential but that aren’t the best fit can be developed into growth drivers. Clients and advisors who aren’t a good fit and don’t have a lot of potential clearly should be let go, he added.

“It’s hard, but advisors need to be really disciplined” about cutting that segment loose and focusing resources on those that can grow the firm.

The effect of regulatory change benchmarking will be advisors’ main defense against the reasonable compensation clause of the DOL fiduciary rule, Durbin said.

“It’s not a panacea,” but it will allow advisors to show how they compare to their peers.

The way firms charge for their services will become more transparent, Durbin said. Robos are driving questions about what the market is willing to pay for advice, he said, and clients are demanding more transparency, too. Almost half of advisors themselves say they need to provide more services to maintain their current pricing, Fidelity found.

Durbin also added that financial services industry is “still in the trust penalty box,” while the big tech players like Apple, Google and PayPal have built a lot of trust with consumers.

Finally, the consolidation that has started in the industry won’t stop, Durbin said. Margins are under pressure and buyers are looking for the value offered through an independent planning model.

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