How the Best Advisors are Getting Better

Meet the Top Advisors Built by Their Clients — New research confirms three new winning growth strategies

The best advisors are getting better – by following the changing needs of their best clients. The top 100 wealth management teams ranked by Barron’s increased client assets by an average 10% over 2021 – a strong performance in a challenging environment. But much more impressive is the average revenue gain of 48%.

How?

New industry data shows that clients want help with complex issues of retirement planning and the implications of longevity. Advisors listening carefully to their clients are adapting – winning new assets and new clients.

Here are the three big growth ideas – with the underlying “why”, the tactical action steps and the research solidifying the trend:

1. Adapting to New Client Priorities

What the Clients Said:

  • Advisors are from Mars – mostly still managing portfolios and touting investment solutions, and clients are from Venus – increasingly concerned about the risks in retirement of inflation, health and healthcare.
  • Retirement is a family affair. Too often, spouses, parents and adult children have not been involved in planning – and have different priorities and concerns.

What the Advisors Did:

  • Engaged the family. The top advisor teams know the family members, especially aging parents with immediate needs as well as adult children who are nextgen clients.
  • Lead with planning. Planning is first organizing a jumble of accounts and products, and then provides the foundation for more specific solutions needed in retirement.
  • Adopt protection strategies in addition to investing. Good planning is also good preparation for expected and unexpected events. Advisors are asking the tough questions about health and family history and a lot of “what if…”

Why It’s Working:

Most of the industry claims to be client focused, but too many clients say they don’t see it – or feel it. A terrific new study by Morningstar1 reveals a complex array of reasons why clients leave their advisors, and the central thread is poor communication. Nowhere in the business is that communication more off target than in retirement planning.

Piling on to the disconnect between investing services and planning advice is the newest J.D. Power annual investor study2, now in its 21st year, that reports investor satisfaction with full service advisors continues to slide - to 727 out of 1,000. Power says the culprit is the “systemic problem” in wealth management of focusing on investments while clients want more comprehensive advice. The study shows 42% of advisors deliver transactional advice, 47% deliver goals-based advice and only 11% provide comprehensive advice. The leaders stand out because the competition isn’t delivering what clients are asking for.

2 Solving for the Trimesters of Retirement

What the Clients Said:

  • “Retirement” is not an event, it’s a journey with new developments and challenges. And every retiring client is a brand new traveler.
  • The stage is a long-awaited vacation -- clients enjoy the best health and the most money they will have in retirement.
  • That vacation can change quickly to a “staycation” if a spouse or family member becomes incapacitated, but many clients haven’t planned for this “slo-go” phase.
  • The third trimester is the “no-go” period when the client may be alone. Clients pondering retirement have typically not considered all three phases.

What The Advisors Did:

  • Longevity is inevitable but also manageable – if you prepare. Most clients know but have chosen to avoid the blunt truth of potential incapacity or disability. And most know older parents, relatives and friends who have grappled with the often sudden issues of health. New to them, but not to top advisors.
  • Mastered the moments that matter. The seven most critical life events are often calls to the practice from clients who don’t know what to do. Top advisors make sure they have a prepared response because the moments are brand new to most clients. And no amount of money can insulate a family from failing health or cognitive ability.

Why It’s Working:

  • Retirees shift the priority of their concerns as they age. Money worries give way to health and healthcare worries as the physical impact of longevity grows.
  • In the Longevity and the New Journey of Retirement Survey by Age Wave for Edward Jones3 , author Ken Dychtwald contrasts longevity – lifespan – with “healthspan”. Life expectancy for Americans overall is 78.5 years, but most people will suffer with multiple chronic ailments for the final 12 years. 2/3 of people 65+ suffer from at least two chronic conditions. Physical health and cognitive health are critical determinants of the ability of older retirees to live safely and securely. The “slo-go” phase. The same study reveals that at age 85, nearly three quarters of women are widows, and 36% of men are widowers. The “no-go” or “solo” retirement stage.
  • Advisors don’t like to talk about longevity and health. Preliminary findings from a new survey of clients and financial professionals from the Alliance for Lifetime Income4 reveals that 75% of financial advisors do not discuss the risks of cognitive decline with their retirement planning clients. It’s not an easy topic, but it’s reality and clients expect advisors to anticipate potholes in the road ahead.
  1. Managing Retirement Solutions is a Different Business

What the Advisors Realized:

  • The complexity and customization of retirement solutions cannot be delivered at the same scale as selling investments. A solitary advisor, no matter how loyal the clients, cannot fly solo with a retiring family.

What the Advisors Did:

  • They built a team of professionals. An advisor who is great at investing may not have the empathy needed to talk about cognitive health. A planning pro may not have the time to learn the fine points of protected income products. A lot of help is available. And they can more easily recruit younger advisors to an existing, successful team to improve breadth of solutions.
  • They plan for succession. Advisors are aging right along with their clients and the best want to ensure continuity for clients and a graceful exit for themselves. The team approach tops the list of solutions for many top advisors committed to their clients and their colleagues.
  • They get paid for what they do. Retirement is not an added-value service to investment solutions. Top advisor don’t typically charge only through investments. Many charge for plans, for their time and for complex solutions. Full transparency. And most expect to see all their clients’ assets and retirement plans and other existing investments.

Why It’s Working:

  • Better scale means better success. Millions of clients with trillions of dollars have accounts with full service financial advisors trying to keep track of an average 150 clients – alone. That math just doesn’t work for delivering real retirement planning and solutions. Top advisors promote the value of their teams and frequently include different team members to assist a family.
  • Planning, protection and solutions is a cleaner value proposition of “advice”. Too many clients have no idea what’s involved in retirement planning and even fewer seem to know what financial advisors really do. Top advisors don’t shy away from the complexity, and make sure clients have a healthy appreciation for the work. A leading advisory firm says advisors engaging protection strategies drive 4X the new client assets as other advisors and have double the revenue growth.
  • Family rewards. There is a virtuous loop working with multiple generations. For a boomer-aged client, the assistance with aging parents may be a top priority today, but it provides an opportunity to reinforce the advisor’s value for creating a similar strategy for the client. And previously unengaged spouses and adult children participate in the process, creating a relationship with the advisory team that secures their assets for the future.

by Steve Gresham

Are Wealth Management Advisors Really Growing?

Faking growth ... Wealth management advisors aren’t really growing. But there is a way forward.

RIP, organic growth.

Most of today’s wealth management offerings are built for a business that no longer exists and for clients that are moving on (not moving in). Why is that so?

Let’s look at wealth management following that train of thought (and anticipating the ultimate derailment):

1. For one thing, the products are free. Investment beta and trading commissions are now free at leading direct providers. So if you aren’t free, what is the value you’re offering for what you charge? If you say, “It’s for advice,” then what’s your advice about?

2. That’s important to ask, because a lot of clients say they don’t want advice, or at least they don’t want to pay for it. During a consumer panel at a recent national industry event, I heard three consumers on the panel say they don’t have an advisor. They said things like “You can do everything at Fidelity,” or “Advisors always sound like they are selling me something.” Forty-six percent of retirement plan participants in a survey said they don’t have financial advisors and aren’t looking for one.

3. Now let’s look at the clients we do have. Most of them are unengaged, and that’s because they have multiple financial services providers, and distant relationships with them at that. Look at the national stats. If you blend all the coverage models, from the small RIAs to the private banks up to the largest direct providers, you get an average ratio of 150 households per advisor. Most “clients” (outside small, intimate firms) are really just fractional clients. You’ll see them as whole clients only until they leave you when they’ve started consolidating accounts.

4. “Retirement” will eventually replace “accumulation” as the reason people are turning to you for advice, and that will determine whether your advice is profitable. Twelve thousand Americans are retiring every day. They have very different needs and require much more attention and complex solutions than they did when they were just saving. This cohort is providing more than 75% of advice industry profits through 2030.

So if we have all these things throwing us off, how do we get this growth train back on the tracks? And what is your definition of “growth”?

If your objective is to sell your organization, you can achieve impressive growth by acquisition, ride rising markets and buy more scale on the dips. Yours is a market share play with a revenue bogey and it’s more of a trade than a business. And when it works, it works—if you can sell at the right time.

But for the rest of the industry, especially those companies responsible to shareholders (as well as clients and employees), the solution is organic growth. And organic growth is measured by net new assets and client share of wallet. It’s also not measured by how well the top 10% are doing, but what the median advisor is doing and what his or her median relationship is. If you are consistent, that will make you a winner in enterprise value.

An executive in our NextChapter community says it very well: “Net new assets indicate the health of the business, and household share of wallet indicates the value the clients place on their relationship with their advisor and the firm.”

Accept The Consumer And Act Your Scale

Wealth management firms seeking a recipe for success will achieve organic growth by providing the clients with what they want now and what they want in the near future. If you are one of the advisors following the 75% of assets under management riding off into retirement, here’s what you need to know about clients and what they want:

  • They have declared that “planning” and “relationships” are their evaluation standards.
  • They are afraid of inflation, they’re worried about being able to fund healthcare and they don’t want to exhaust their assets
  • They need a certain amount of liquidity to achieve not just their large expenses in retirement but their peace of mind.

There is no way to solve for these issues if you’ve got 150 clients per advisor (if you plan on using only human beings in those advisory roles). You would need to employ a lot of humans.

The path forward is to first design for your scale—and be clear-eyed about what you are and what you are not. And then you must make sure you declare your value proposition to your associates and clients. The days of being a “financial advisor” are over. It is time to be crystal clear about what you do since most clients seem not to know what we do or why they need us.

Every advisor and practice is different, so there is less value in providing “the answer” than in asking the right questions to help determine your appropriate scale:

  • What do you really do? Maybe you can manage a book of 150 clients with investments, but you can’t do it with retirement planning. Our research of top planning advisors reveals a coverage ratio closer to 25 households to every one professional. And virtually all successful retirement planning practices are teams with multiple professionals with different specialties.
  • Who are our clients? The more variety in your clientele, the less efficient you are. And what percentage of a client’s assets under administration do you need for what you do well? Scale favors bits of clients and single decision-makers per household. Planning benefits from having the entire family involved.
  • What are we solving for? Our assets under administration may have driven profits but the aging clients now want you to shift from investing to protecting these assets. Have you? Liquidity, credit, liability management, long-term care, premature death protection, longevity protection—these are the new benchmarks, not the S&P.

The Inertia Of Success Is The Enemy Of Growth

Now is a good time to remember the old saw: “The primary obstacle to future success is your current success.” The U.S. stock market has rocketed to 37 times its value during the reign of the baby boomer, starting in 1982. The unprecedented lift from markets will not carry the industry forward from here. It’s time to reinvest some of those gains into a market offering incredible opportunities—and we’re overdue for change to meet the new demands of our current clients, who are now expecting more.

The opportunity is even bigger for first movers, because the inertia of success will trap many current industry leaders. We’ve seen this movie before—in the movie business, as it happens: when consumers left theaters, first for Blockbuster, then for Netflix. Wealth management might be a similar victim, but only if we try to hold on to a business fundamentally changed by the consumer and if we invite the innovations and competition that will defeat us.

Of course wealth management is not dead. But it is being dramatically transformed by the consumers who need it to be different from the way it works today. And not every provider is assured a spot in that new, multifaceted consumer world.

It's a choice.

by Steve Gresham