Angie Herbers

The changes that firm leaders are making in response to the COVID-19 pandemic will be felt for years to come.

As with other segments of our society and economy, COVID-19 is changing the independent advisor business. To determine how — and how much — in early March, our firm launched an ongoing survey to track behavioral changes in the industry within advisory firms in response to the pandemic.

With a data set of 251 responses so far, the 2020 Herbers & Company Culture and Client Service Study finds that, in a short period of time, COVID-19 has brought about transformations in the way advisory firms operate and serve their clients and how leaders make decisions. Here are our key findings:

1. Financial advisory firms are prioritizing operational procedures over innovation and marketing.

We found that 78% of firm owners are putting their primary focus on revamping and expanding their firms’ operational processes and design. By focusing their now “virtual teams” on operations, advisory firms are cutting costs by streamlining operations to expand profitability.

In addition, we found that 59% of the firms surveyed reduced overhead expenses and decreased shareholder dividend payouts, to maintain profitability. At the same time, we found that less than 2% of the firms surveyed laid off any staff or employees.

As for marketing, less than 6% of firms hired any extra help, and only 7% are conducting marketing campaigns to attract new clients during the past two months. The firms in our study responded that they have moved their focus to organic growth programs, generating client referrals.

Taken together, this means most firms are prioritizing: stabilizing their business, expanding their services and improving on those services.

As for innovation, 12% of firm leaders are creating something new for their firms. What they are creating, which seems to be under “lock and key” for some, is still unknown. What we do know is that a surprising 10% of firms surveyed said they are turning to an “innovation mindset,” rather than a “growth mindset.” Or, put another way, these firm owners are focused on making their businesses better, rather than bigger.

2. Advisors are focused on expanding client experience. Today’s firm owners are reformatting strategic plans, with a focus on client service programs.

Once leaders stabilize their businesses to the point where they are running smoothly under the new circumstances, they are looking toward upgrading their “client experience” to address a new set of client needs in the current crisis. This involves more client contact and “handholding” within the digital environment.

This isn’t much of a surprise. With fears about the pandemic, the economy and financial markets, clients need as much reassurance and handholding as their advisors can provide. We found that most firm owners are aware of this, and along with their staffs, are expanding their “client experience” to include much more contact, information, access, and timely responses as possible.

3. Peer groups are cutting out the middleman in mergers and acquisitions.

Our survey uncovered that advisors get their information and advice about the current, changing situation from two primary sources: written articles and peer groups. Of those two, we’ve found that peer groups have gained the most “mindshare,” or influence, in recent years compared to the last time we faced a nationwide crisis in 2008. However, written articles were overwhelmingly cited as the information source that advisors turn to for information about industry and financial market trends.

The information source we found of most interest is the rise in peer groups regarding M&A transactions. Not unlike 2008, our survey data revealed that M&A discussions are continuing and growing, only those discussions are happening leader-to-leader rather than through consultants, matchmakers and/or M&A firms.

Not surprising, as in lower profitability environments, financial advisory firm leaders tend to cut costs where they feel they can. Going direct to their peers for potential M&A activity within their established communities would seem logical, although can be fraught with potential risks if the parties are not properly guided by legal counsel.

4. Client service is assertive and market-focused.

Throughout March, most advisory communication did a dramatic shift from a focus on financial planning to a focus more directly on the markets, as advisors cited they no longer could avoid talking about it.

“In an environment where the market suddenly drops by 20%, avoiding this discussion is not possible,” one advisory firm leader stated during the study. At the same time, most communication has gone fully digital, with firms putting more emphasis on being more direct in their communications via email. In other words, they’re using shorter and more frequent communications with clients.

There was also a rise in video communications, although with some skepticism regarding how the communication would be viewed by compliance authorities. Communications became more personal and question oriented. For example, emails are more focused, asking “How are you doing?” to make sure clients are safe and healthy.

In addition, they may frame the conversation today from a relational approach, such as asking if the client is getting what they need and/or whether there is more an advisory firm could do for them. In the data, the firm’s only intent of these communications is to check on clients, not give instructions or inform them about something related to their financial situation.

A New Landscape?

All these findings taken together show there is a major overhaul of the independent financial advisory business model taking place. As the advantages of many of today’s changes become clearer, we doubt that many business owners will be interested in taking a step backward.

For instance, it’s unlikely that many clients would want to lose their more frequent contact, rapid responses, increased information, market-focused assertive communications or easy access to their advisor.

In a world where we want to get “instant help and information,” we’re seeing firms adjust their organizational strategies to be more team based and more quickly meet the needs of today’s clients. And as for advisory firms, we see working from home for many or most employees to be a possible permanent change and/or an option for employees. For employees, having more options to be productive outside of a traditional office environment may be appealing.

And for business owners, dramatically cutting their costs for expensive office space is a consideration.

Finally, we expect to see a continued resilience by firm leaders. As we watch the data continuously evolve, firm leaders are saying they don’t want help with “leading” but instead want help with understanding how to make business planning more “responsive” and how to make faster decisions and develop quick strategies in a rapidly changing environment.

Angie Herbers is an independent consultant to the advisory industry. She can be reached at angie@angieherbers.com.