How will you succeed in the years ahead?
Multiple trends are shaping the industry and how advisors respond to those changes today will determine whether they thrive or just barely survive over the next few years.
Will Robos drive down pricing and push mainstream advisors out of business? Will Vanguard, Schwab, Fidelity, and TD Ameritrade grab the lion’s share of the mass affluent market with their hybrid robo offerings? Can lifestyle practices survive?
Those are just a few of the questions I discuss with today’s guest, Chip Roame. Chip is the Managing Partner of Tiburon Strategic Advisors and a leading strategic consultant to CEOs, other senior executives, & boards of directors in the banking, insurance brokerage, & investments markets.
While it’s easy to dismiss “the future” as something you don’t have to worry about today, the reality is, change is happening faster and with more ferocity than most people think. Listen to today’s show to catch up on some of the big trends and learn how to make your business “built to last.”
Listen to the Full Episode
Five Quotes From Chip Roame…
1. The tens of trillions of dollars transferring from one generation to the next that we keep hearing about is way overstated.
“If you just think about as Baby Boomers age, what happens? Well, number one, they live longer, and so they will spend some of that money. Number two, they will have healthcare costs that deplete some of their savings, and number three, a small smidgen of them will also have an estate tax issue. If you strip out all three of those issues, the amount that actually transfers in any generation to the next generation is relatively limited,” said Chip. But there’s still plenty of opportunity with 10 million households in the U.S. having a new worth of at least $1 million.
2. While Betterment, Personal Capital, and Wealthfront get lots of press as leading robo/hybrid advisors, they won’t be the big long-term winners.
Chip thinks the long-term big winners will be Vanguard, Schwab, TD Ameritrade, and Fidelity. “We think those firms will become the largest players in the robo space, even at some point surpassing the defined contribution plan firms,” said Chip. So, as you think about your robo strategy, check with your custodian and see if they have an offering for you that might be a good fit with your existing technology platform.
3. The accelerating pace of technology development will continue to automate things traditionally done by financial advisors so advisors who resist will become history.
“There’s a natural progression in automation, whether it be simple stock-picking to a basic financial plan, to even a basic estate plan. But there will still be a market out there for great advisors who serve clients super well and offer a personal touch and offer advice that one can’t automate. It just becomes a stack rank about how much advice do I want and how complicated is my situation,” said Chip. Retirement coaching, life planning, healthcare and career management, are all areas advisors can consider branching into as ways to add more value.
4. Basic investment advice is becoming commoditized so to maintain profit margins, advisors have to offer better and deeper advice and use technology to become more efficient.
“I think the margins on investment management are coming down, and they probably should, especially those who build portfolios and pick some no-load funds or some ETFs. That’s probably not worth 100 basis points to do that. Now financial advice and asset location and estate planning and other services that same advisor could offer are certainly worth 100 basis points, that’s what all the studies tell you, but it’s not in the narrowly defined investment advice area. I think the endgame, or at least the midterm endgame, probably becomes a similar price, similar revenue line, far more services bundled into that price, but the utilization of technology by the advisor which makes him or her a lot more efficient and hence keeps up their margins,” said Chip.
5. There may be a place for the lifestyle advisor in the years ahead.
“I’m not convinced that lifestyle businesses need to grow. I’m also not convinced that they’re under any grave threat right now. Now, if they want to be in business 20 years from now and want to be thriving, well then yeah, maybe the cards are stacked against them for that answer, but if they’re not going to be in business 20 years from now and they don’t want to be a lot bigger, well, I think they’re just fine as a lifestyle business,” said Chip. Affiliating with a larger “middle layer” firm that provides a platform and support—while still allowing the lifestyle advisor to maintain independence—is one way to extend the “life” of a lifestyle practice.
Chip Roame on pricing…
I think the margins on investment management are coming down, and they probably should.
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