Beware the path to extinction
- Boomers are retiring (10k per day).1
- Millennials now make up the largest percentage share of the U.S. workforce (34% of US labor force).2
- The number of advisors in the industry is contracting (12% total advisor decrease in last five years).3
- Multi-generational wealth is beginning to transfer ($30 trillion in the next 30 years).4
- Technology is shifting the landscape (robo, robo, robo).
What factors are preventing some advisors from embracing change?
- Team-based scale is becoming necessary to compete. 42% of total advisor AUM is represented by teams with more than $500 million in total AUM.5 Efficiency demands on advisors, especially sole practitioners, are increasing as scale achievement tilts in favor of the largest advisory teams. In addition, a new skill set is required to effectively recruit and manage an engaged, motivated, and optimized team.
- Timeframe to exit. As advisors approach retirement, many face a declining appetite for change. The idea of overhauling a practice becomes less appealing. Given that 43% of financial advisors today are older than age 55, this issue affects a large part of the advisor community6
- Inertia. Investing the time and focus to significantly impact the enterprise requires a tremendous amount of momentum and energy. But inertia, one of the most powerful forces in human nature, inhibits many advisors across all stages of the lifecycle from advancing to next level.
What can you do to avoid the Dino dilemma?
- Consolidate your product set. The larger your product offering, the harder it is to scale your business because product selection and portfolio implementation are resource-intensive activities. They also have the potential to introduce liability into your enterprise because products that don't receive the proper oversight and monitoring are a risk to your client portfolios.
- Find a manageable number of households. Conduct a comprehensive, realistic review of your client base to identify the number of clients that you and your team can effectively serve. Some advisors are complacent about the basic requirements of managing a client relationship. But acquiring and maintaining quality client relationships necessitates demonstrating great relationship depth and a comprehensive understanding of client’s needs. These “requirements” will only continue to increase. Having too many households limits your ability to effectively compete in the industry.
- Optimize your service model. Reevaluate your client segmentation and align your service offering accordingly. Many advisors deploy their resources inefficiently – often, providing a service level that isn’t aligned with the amount of revenue a client is bringing to the business. Organizing your service model in congruence with your revenue-based segmentation is a powerful mechanism to shift your resources and focus to the areas of greatest impact.
- Build a team. Team formation is easier said than done. There are a number of challenges that advisors face when merging, acquiring, or building a team. The skill set used to run a successful team is not the same skill set required to be a successful sole practitioner. Advisors with team aspirations must recognize that recruiting and managing people involves different requirements than attracting and servicing clients.
1 Source: Pew Research Center
2 Source: Pew Research Center
3 Source: Financial Advisor Magazine
4 Source: Investment News
5 Source: ThinkAdvisor
6 Source: CNBC As of May 1, 2014