Myth #5: The industry will benefit from a huge transfer of wealth. Yes, there will be a huge transfer of wealth, some $30 trillion, but only 40% of baby boomers plan to leave behind an inheritance, while 30% will spend it, and 30% just aren’t sure. This is especially true as life expectancy continues to increase. (Photo: Shutterstock)
Myth #4: Advisors are reducing their fees. That depends on the firm. Elite advisory firms aren’t feeling the burn, and in fact, 84% haven’t reduced or changed fees in last two years. Ten percent of firms increased fees while 6% decreased fees. When asked if they had pressure from clients to reduce fees, 58% said no; 42% said yes. Pershing did find that in 2017, 28% of advisory firms made pricing changes, and of those, 64% increased fees. (Photo: Shutterstock)
Myth #3: Robo-advisors will kill the business. False. In fact, today’s robo-advisors have $202 billion in assets under management, when it was projected originally to be in the trillions by now. Further, most of that is held by three firms: Charles Schwab, TD Ameritrade and Vanguard. And these firms, Garcia said, have noted that business came from cannibalization of their other client business.
Nor are millennials so hot on robo-advisors. In fact, 62% didn’t know what a robo-advisor was and 16% said they would rather work with a human. (Photo: Shutterstock)
Myth #2: Firms are getting larger. Growth means different things to different advisors. Key metrics cited were more and bigger clients, top-line revenue, profits or number of offices. It’s true that firms have grown as measured by average revenue, from $3 million in 2013 to $4.2 million in 2017. For “super-ensembles,” revenue was $15.7 million in 2013, and today (down from 2015) is $18.6 million. Operating profit today on average is close to 25%.
The median revenue growth was 12% in 2017, but take into account the S&P 500 growth was up 22%. The answer is yes, there has been growth by several measurements, but growing clients is what should be most important to a firm. (Photo: Shutterstock)
Myth #1. There is a talent crisis. True, but it may not be as bad as we thought. Although it’s the top concern of 36% of advisors polled, and 30% of advisors today are 55 to 64 while 15% are over 65, 55% are 54 and younger. Looking across all advisor practices, what comes to light is 51% of advisors who handle the bulk of AUM have 20 years or more of experience. That said, 49% handle the rest. Further, of the 15,000 RIAs, 72% handle only 7% of assets. Therefore, there is capacity for growth and a deeper bench than originally thought. (Photo: Shutterstock)
During BNY Melon Pershing’s RIA Symposium in Chicago, Gabriel Garcia, managing director, Advisor Solutions for the firm presented some of the myths floating around the business, and whether they are true or not.
The implications for these myths, false or not, are that firms need to prepare in the good times, like now, for the bad times. They must execute a sales plan, bringing in more than 20 clients a year. They also need to invest in technology as investors today expect a digital experience. And they need to understand that while baby boomers still control the wealth, advisors can’t ignore the next generations, especially Gen Xers, who control $6 trillion in wealth.
Check out the gallery to see those “myths” and what Garcia found.
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