How advisors can stay relevant in a rapidly changing industry

With the stock market hovering near all-time highs and your advisory business likely hitting new revenue peaks, what’s an advisor to worry about?


Consider these snippets from recent media reports.

  • “Fewer investors across all age groups are using traditional advisors as their primary provider of financial guidance.”
  • “Younger investors are not as interested in having a personal relationship with their advisors as previous generations.”
  • “74 percent of investors own a direct investing account—a personal discount brokerage account with no in-person advisor—but FAs believe that just 17 percent of their clients hold these accounts.”
  • “These days direct investing has become ubiquitous, with many investors preferring to do it online themselves, rather than take the time to go into an advisor’s office.”
  • “Wealthy under-50s were much more tech-savvy, more demanding of their advisers’ time, and much more willing to switch advisers than older investors.”

Sources: Media reports quoting Cerulli Associates, Mike Casey, Cisco

While the idea that technology and direct service providers will encroach on advisors’ traditional turf is not new, what is new is how quickly this is now evolving.

The Advisor Kodak Moment

KodakLast year, I attended the Color Rush Exhibition opening lecture at the Milwaukee Art Museum and listened to two curators discuss the history of color photography. It struck me how the growth and evolving nature of color photography is a metaphor for what’s happening in the investment advice business.

The original “big winner” in the photo business was Eastman Kodak. Where’s Kodak today? Newly emerged from bankruptcy.

Kodak got crushed by a technological invention called the digital camera. And guess who invented it?

Kodak in 1975!

The next year, Kodak had its “Kodak Moment” as it claimed a 90% market share of photographic film sales in the United States.

Now, put your executive hat on and pretend you are the CEO of Kodak in 1976. Would you start rapidly developing the digital camera knowing it would spell the end of your 90% market share cash cow?


Kodak wouldn’t either and it became toast.

Advisors are having a “Kodak Moment” right now as business is booming and the stock market is near all-time highs.

Yet things are a bit different than they were back in the mid 2000s when business last boomed.

How different?

Compliance is stricter, clients are distrustful, and new ways of managing money and delivering financial advice have the potential to turn complacent advisors into irrelevant Kodaks.

Companies like Wealthfront, Betterment, Jemstep, and SigFig are all angling for a slice of the financial revenue pie. And this pie consists of effectively just two slices—the investment management slice and the financial planning slice.

For most advisors, the majority of their revenue comes from the investment management slice. And guess what these new companies are focused on? Your bread and butter—investment management. And they’re doing it for 25bps or less.

Don’t do what Kodak did and ignore the looming threat.

How Long Will You Prosper?

Live Long and ProsperMany experts believe advisors will continue to prosper despite the rise of these new investment alternatives. Why? Because advisors can do something an online service will have trouble doing, namely, develop a relationship, hold the client’s hand during turbulent times, and create a comprehensive financial plan that saves taxes, preserves estates, and insures against losses.

For now, the high end of the market is safe but there’s a huge market below and it’s ripe for picking by the online posse.

Let’s look at some facts.

  1. Technology is in an arms race. Smartphones, tablets, social media, and the growth of apps and content have made devices and online interaction an indispensable part of our lives.
  1. Technology tools are not just for young kids with no money. Many folks in advisors’ target market are online, engaged, and using iPhones and Galaxies. A recent survey by Cogent Research, LLC said, “About 34% of affluent investors specifically use social media such as Facebook, LinkedIn, Twitter and company blogs for personal finance and actual investing.” Heck, even my 80-year mom is buying books online, reading them on her iPad, and Skyping with her kids and grandkids.
  1. The non-techie generation is dying off. Before you can blink your eye, your target market will consist of people who grew up on, are adept at, and quite comfortable with technology as they use it to shop, communicate, plan their day, find their lover, and chart the course of their life.

So, where does this growth of technology-based alternative forms of investment advice leave the “traditional” financial advisor? Are they destined for a Kodak future?

In short, no—as long as you take action now to remain relevant.

4 Things To Do Now

The first step toward taking action is recognizing the necessity of it.

Twenty years ago, advisors had the upper hand. There was no consumer internet brimming with do-it-yourself investment information and tools. There was no access to research without going through your broker. And there were no online brokers offering $10 trades.

Essentially, traditional brokers controlled the flow of information and investors had to pay dearly for access to it.

Today, it’s completely shifted. For investors who choose to control their own investments, they have access to all the information and tools they need to do away with an advisor.

So, to stay relevant to the next generation of investors, advisors have to reinvent themselves and stay one-step ahead, or at least even with the evolving nature of the industry. Here are 4 things to do now.

  1. Hangout where your future clients are conversing. This means having a modern website, blogging and guest blogging, and being relevant on social platforms such as Facebook, LinkedIn, and Twitter. Get comfortable with delivering webinars, creating videos, engaging in video conferencing and using apps to communicate. The time for “listening” on social media is over. It’s time to interact.
  1. Offer what cannot (easily) be commoditized. This includes:
    • Delivering and charging for real financial guidance; not “one and done” sales come ons disguised as financial plans.
    • Developing real client relationships where you like them and they like you. If a client views you as a “strictly business” relationship, it will be easier for them to outsource your services to an online provider. A solid, trust-based, respectful relationship will make you indispensible.
    • Helping your clients realize their ideal life. Go beyond money and facilitate your clients’ journey on the path to a fulfilling life filled with positive emotions. Go deep and find out what really “moves” your clients and then facilitate that movement. Find ways to make a profound impact in your clients’ lives. Do so and you’ll turn clients into advocates.
    • Making your clients’ lives fun, productive, and profitable. Since you and your clients like each other, engage them in fun and educational ways by using and creating innovative planning tools, hosting author and museum lectures, and holding gourmet dinners at your house. From a productivity standpoint, make their life easy, e.g., hold video conferences instead of requiring clients to always come to your office. Enrich your clients’ lives by introducing them to interesting people or referring new business to them. You don’t have to become your client’s best friend, but they shouldn’t think it’s weird when you call to wish them a Happy Birthday.
  1. Begin and keep innovating. Research and try new things to keep your thinking fresh. Attend a conference outside our industry. Read things not normally on your radar. Have coffee with some of your clients who are doing interesting things and learn more about their challenges, triumphs, and insights. Find ways to take ideas from other industries and apply them to your business. If you start “failing faster,” you’ll know you’re on the right track.
  1. Embrace online client relationships. Thinking strategically, the online investment firms I mentioned earlier shouldn’t be feared, they should be thanked. They are spending VC money to pioneer and do early-stage research on how to attract and work with the next generation of investors. You, as an insightful advisor, should piggyback on their dollars and be hard at work incorporating and learning from the online pioneers—and perhaps partnering with them. By offering clients a choice of working with you online, in person, or a combination of both, you will meet the needs of the next generation of investors and prosper.

Its Not Too Late

DatsunIndustries get waylaid from the bottom up. In the 1960s and 70s, Japan made cheap, crappy cars and gained an inroad in the U.S. Gradually, they improved quality and then Detroit was toast (although Detroit is coming back—case in point—we just bought a new Buick!).

The same thing is happening in the investment advice business. Low cost players are picking off the cost sensitive and technologically savvy end of the market. Over time, more people will get used to doing business this way, the online providers will move upscale, and financial advisors could be poof.

Don’t go the way of the Dodo bird. Take a page from Google. They are constantly pushing the envelope, constantly trying new things, and constantly innovating—and sometimes failing. They’re building a driverless car and wi-fi glasses for crying out loud!

For now, there’s still a strong market for in person financial advice, but it’s morphing. Like a stock that doesn’t know you own it, change happens whether you like it or not and change can happen in an instant. So, embrace change. Embrace technology. Offer an online relationship option. Meet and work with your clients where, when and how they want.

As Andre Gide wrote, “Man cannot discover new oceans unless he has the courage to lose sight of the shore.” Folks, it’s time to say goodbye to dry land so you can discover the ocean of opportunity that awaits innovative thinkers and doers like you.

Photo credit: Lending Memo, spDuchamp, Sam Howzit, Brujerizzmo

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Steve Sanduski, CFP® is a FinTech entrepreneur, New York Times bestselling author, podcast host, and international speaker.
By | 2016-04-08T17:14:08+00:00 June 9th, 2014|

One Comment

  1. […] The opportunity for visionary advisors lies in creating a true “real person” advice offering with demonstrable benefits coupled with the ease and simplicity of a robo. […]

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