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As advances in technology and other trends continue to reshape the role of the financial advisor, it’s clear that an agile approach is key. Members had the opportunity to explore the most important actions advisors are taking to change their practice and what they will need to be ready for the future during Nicsa’s SLF in February 2020.

Scott Smith, Director, Advice Relationships at Cerulli, moderated the panel, which also featured experts from Invesco and Morgan Stanley.

“A little over five years ago, it seemed like robo-advisors were going to put all of us out of business, and the self-directed market was going to explode — obviously, we haven't seen that happen,” Smith said. “The rather surprising thing is we’ve seen the advisor-reliant class grow from 32 percent to 39 percent from 2013-2019.”

Smith said Cerulli hypothesizes that the more clients began experimenting with DIY tools, the more they realized the value of the financial advisor.

Nathan Dierking, CIMA, Senior Vice President, Divisional Sales Director at Invesco, said that while everyone’s familiar with the Orwellian future depicted in 1984 (in which an entity tries to control people by withholding information), there’s a philosophy that’s relevant to financial advisors on the other side of the coin.

“Philosopher Aldous Huxley’s biggest fear was that society would overload us with so much information, we wouldn't know what to do,” he said. “And that's kind of where clients are right now. The biggest challenge we see from a demand-for-service standpoint is trying to communicate in a way they understand, providing simplicity amid all the noise.”

Smith said traditional advisor assets in a fee-based relationship (vs. brokerage) came in at about 24 percent in 2005 where the fiduciary standard of care applied. “By 2018, that figured moved up to 46 percent, and we anticipate it to crest over 50 percent by the end of 2020,” he said.

Matthew Scott, Vice President, Business Development Manager at Morgan Stanley, said the difference could be attributed to a change in the FA value proposition.  

“Many in the industry started out cold-calling as brokers, whereas today we’re focusing on holistic wealth planning and what I like to call family wealth management — so there’s been an evolution in terms of advice,” he said. “The other thing is, our platforms are better able to handle a wider array of assets and solutions.” 

PORTFOLIO ALLOCATION MODELS

Smith said advisors have historically placed building their own portfolios at the core of their value proposition.

“The way I like to explain it is that they consider themselves chefs — they have recipes, put them together and end up with great portfolios for their clients,” he said.  

“But when we look at the numbers and talk to our partner firms, advisor performance is often less than outstanding in this particular part of their business. We are very much encouraging them to rely more on third-party asset managers to get those recipes instead of developing their own.”

To that end, Dierking said the demand for asset allocation models is increasing in a meaningful way.  

“Advisors are realizing they’re not being rewarded for being a PM as much as they are taking care of clients from a total wealth management perspective,” he said. “And now, there’s the ability to take these models and add complexity to them, while still keeping them somewhat turnkey, which will be a key component in the future.”

Scott said advisors are waking up to the fact that they will be spending more time managing their client relationships due to the demand for advice, and that they will need to decrease the amount of time they're spending on investments.  

“That’s tough for those who got into the industry in the ‘80s and ‘90s,” he said. “We’ve found that for many folks, dipping a toe in the water leads to success. They find a partner that they've followed for a long time, and use them as a core portion of the portfolio. This way, they ease into it over time.”

Note: Although the observations contained in this work represent the best thoughts of the individuals comprising the Nicsa panel, they do not necessarily reflect the views of Nicsa or any of its member organizations. Matters addressed in this work may touch upon legal or regulatory matters, however nothing herein is intended to be or should be construed as legal advice. You should contact your own counsel in order to obtain legal advice regarding these or any other matters.