There is an awful lot of discussion about consolidation these days. Aging advisors have failed to implement continuity and/or succession plans which means they will eventually sell. Emerging advisors do not have the scale necessary to compete in an increasingly complex and competitive landscape so they will eventually sell. Compliance is too complex and time consuming for a small firm to handle. And, according to Mark Hurley, emerging advisors who opt for independence and who do not sell will “have few options available to them. They will be largely at the mercy of the broader forces sweeping through the industry. Those owners will work much harder and get paid much less.”
While all that is true, we disagree with the conclusion. We believe this view better reflects the views of the ~200 firms that Hurley believes will “inherit the earth” (and acquire everyone else) than to the vast majority of advisors. The need for emerging advisors to sell may have been a reasonable conclusion ten or twenty years ago but it is certainly not today. The industry has matured and there is now a substantial ecosystem supporting wealth management firms including a long list of outsourcing solutions. That fact changes the equation and demands a new question: can I redesign my practice using those solutions to capture the economies of scale, or the experience or the continuity planning solution that my firm lacks while maintaining my independence? Paula Vasan, managing editor at OnWallStreet picked up this distinction in her article of April 30, 2013 and we decided to expand on it in this newsletter.
Mark Hurley recently co-authored another provocative white paper titled Brave New World of Wealth Management. The paper laid out a challenging prognosis for the wealth management business: he suggests that the largest 1-2% of firms will prosper and achieve substantial enterprise value and everyone else will “work much harder and get paid much less.”
Indeed, there is a growing list of multi-billion wealth management firms with ambitions to consolidate the wealth management business and perhaps “go public” at huge valuations like LPL and Envestnet. These firms are driving a consolidation storyline in hopes of herding advisors into their gathering arms. And they are generally focused on gathering the largest firms ($500MM plus) in order to reach their goals quickly.
But this is the storyline of a few. What about everyone else? Does Hurley’s prognostication carry any water for the rest of us? He may be correct in many instances, but the future is in your hands. Unlike ten or twenty years ago, there is now a substantial ecosystem of solutions available to support independent firms. These alternatives provide a path to a very different outcome. Forward thinking advisors are taking steps to ensure their place at the table by redesigning their firms using many of the solutions now available. Those wealth managers are redesigning their firms for essentially one of two reasons.
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- The first group is seeking solutions that free up their time to grow. They realize they need to work “on the business” instead of “in the business”. That means spending more time on existing clients and new business development. That means acknowledging that their true value to clients is in designing and delivering a financial solution that fit client needs and that they do not necessarily need to manufacture all of those solutions. They realize that what they have been doing is not getting them where they want to go. They realize that growth takes time, high levels of energy, passion and concentration. They realize that maintaining that energy and finding time to apply it is near impossible when you are fixing your printer, producing reports and watching the markets. They no longer want to finish the day feeling unfulfilled and unproductive.
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- The second group is seeking solutions that free their time for lifestyle. Many advisors in this group have achieved a desired level of success, are at or near retirement and are looking to maintain the business without being consumed by it. They are seeking solutions that free their time from more mundane day-to-day tasks so they can focus on clients and their own personal goals.
The range of solutions offered today is extensive. They range from individual in-house solution to comprehensive outsourced solutions. A list of many of these providers can be seen by visiting Virtual Solutions for Advisors – an online directory of such solutions. Our observation is that the number of individual solutions can be as overwhelming as doing nothing and, as a consequence, there is growing interest in more comprehensive business solutions like those offered by Pinnacle Advisor Solutions. Imagine the time and energy saved and redirected towards more productive business pursuits if you could
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- Relinquish your day to day investment management role
- Let someone else deal with operational problems
- Let somebody else handle your billing
- Let someone else produce your client reports.
- Let someone else keep up with technology changes
- Let your outsourcing partner deal with hiring and managing necessary staff
- If you could spend less time and money on marketing with more impact.
The advantages are obvious. So what’s stopping you? The two key hurdles associated with a firm redesign are (a) overcoming the inertia of day to day activities to research and pursue a re-design and (b) a personal willingness to release control of some of these activities. Those who overcome these hurdles are realizing their personal and professional goals. John Peterson, an advisor who engaged the Pinnacle Advisor Solutions program, has realized renewed growth and is now “beginning to have fun again”. Those who fail to control their future are likely to remain on a “hamster wheel” and suffer Mark Hurley’s predictions.
Pinnacle Advisor Solutions offers a unique solution that can completely change the future of the emerging advisor. It provides them with more freedom from routine tasks than ever before. Whether you want to focus on growth or golf, you will have more time, provide better investment management, free yourself from a significant amount of operational issues, and communicate more meaningfully and frequently with your clients. In addition you will increase net earnings and establish “Enterprise Value” at a level you have never imagined.
