Today, more than ever, advisors need to offer a baseline of digital services to be considered a serious player in the future of financial advice
By Nick Richtsmeier, chief innovation officer, Trilogy Financial
Increasingly, being a financial advisor or advisory firm in the 21st century feels like a gamble with unfamiliar playing cards. Seasoned advisors who built their books on personal characteristics and highly analog client interfaces (three-ring binder financial plans anyone?) are finding themselves overrun by discussions of SEO marketing, AI portfolio management and the gamification of goal creation. For many advisors and firms, all of this means a quiet calculation of how long they want to stay in the game before they retire. Many have a loyal base of clients who aren’t asking for video-conferencing, universal access account aggregation or other buzzy topics. Their relationships will very likely be the ark which carries them through this digital disruption.
When I talk with these advisors, they are often cavalier about robo-advice services, some — unfortunately — speak condescendingly about the expectations of Millennial and Gen-X clients, and reflect wistfully on a simpler time in an industry they hardly recognize anymore. This stands to reason, advisors facing retirement in the next five years don’t need to find themselves on the adoption spectrum. There is no reason to adapt to a world they don’t intend to stay a part of.
But for any advisor or firm with a timeline longer than five years, some self-reflection is required. The table stakes for playing in the game of financial advice have been raised, and the disruption isn’t over. For advisors who wish to stay in the conversation (and lower the risk of losing their clients), an awareness of these new table stakes can make the difference between intermediate-term success and failure. While not all of them are specifically digital, all of them have been triggered by the digital revolution and the incredible access to financial information and services it has ushered in:
- Paperless Processing: While the robo advisors offer little existential threat to most financial advisors, they have played a role in changing expectations. The advisors and firms that are going to thrive in the next 5–10 years will need the technological ability to open accounts digitally (no paper forms) with near-immediate accessibility to information. If the client can’t get an account number within 24 hours of signing paperwork, it starts to smell like inefficiency.
- Digital Account Aggregation (Including Outside Assets): Here the robos rise again. The third generation of robo advisors, including Vanguard Investment Services — which represents hundreds of billions in client assets, are now partnering with account aggregators to provide their clients with a one-stop-location for all their assets, regardless of custodian. Clients increasingly want you to be platform agnostic, and they want the account aggregation as a cost-free value-add.
- On-Demand Digital Financial “Plan:” I use air quotes around plan here, not because digital planning is inferior (it’s not) but because it’s not stationary. The days of 100-page PDFs of graphs and disclosures representing financial planning are behind us. As clients seek to navigate a variety of what-if scenarios, they want to see the effects of their decisions real-time, not wait two weeks for you to kill another tree.
- Full Fee Transparency: For the last 20 years as insurance sales reps became brokers at independent broker dealers and are now launching RIAs, the industry has crept slowly down the path of fee transparency. The rise of ETFs as the primary investment vehicle of many Americans has set the expectation that the client should know exactly what they’re paying and for what. Advisors who continue to market products with opaque fee structures and “trust me” value propositions will be faced with questions about who’s getting paid, how much and why.
- Self-Determined Standards of Care: The pressure on fee transparency goes beyond dollars and cents. As the financially-conscious public becomes more and more aware of the options for financial advice, their appetite for varying levels of service rise as well. Advisors and firms need to have set pricing structures with clear service standards of care: How often will there be reviews? What communication can the client expect? What “value-add” services are included? Can the client eliminate services they don’t want (like face-to-face meetings) and reduce their fees? Regulators will require the answers to these questions to be systematized and unbiased, sending a shock of fear into the hearts of advisors who have been willy-nilly about pricing and special services for their preferred clients.
While many see this list as daunting, the best advisors will see it as an opportunity. Many firms may not have the internal intellectual resources to build expertise in any or all of these areas, but that shouldn’t be a setback. An increasing army of industry consultants bring competency on all of these issues, while the custodians and other technology providers are more and more interested in being advisors’ go-to partner to help face the opportunities of the future.
The only true danger is to do nothing. Advisors whose confidence has calcified into hubris have some soul searching to do in an industry that is doling out opportunity, but only to those with the humility and courage to come to the table with more than they’ve brought in the past.
Nick Richtsmeier is chief innovation officer at Trilogy Financial and chief operating officer of its independent Registered Investment Advisor, Trilogy Capital. Founded in 1999, Trilogy Financial is a privately held financial planning firm with nearly $3 billion in assets under management. Headquartered in Huntington Beach, California, it has 10 offices throughout the United States. Richtsmeier, based in Denver, can be reached at Nick.Richtsmeier@trilogyfs.com or (303) 583–6069.