toward older baby boomers clients , and by 2035 , this cohort will be well into their asset unwinding phase . That offers a poor indication of where the biggest firms will be , and suggests that the biggest determinant of any firm ’ s future success will be the number of new clients it can capture over the next 10 to 15 years .
Or , as former Fidelity Institutional executive David Canter likes to say : in 10 years , “ we ’ ll all be 10 years older .”
Market performance has covered up most of the advisory industry ’ s flaws , including its lack of talent development , which probably tops the list . “ One of the sins camouflaged by consolidation is many of these firms who sold failed to
plan for true succession , so off-loaded their continuity problem to buyers ,” says Mark Tibergien , a financial services executive and director of Pathstone , a $ 100 billion RIA . “ One can only hope that firms who are now at critical mass through rollups will start focusing on next-gen advisors , staff and clients .”
The generational shift underway now will be largely complete a decade from now . “ The upcoming wave of new clients will consist of younger individuals , most of whom will be capital accumulators ,” Hurley contends .
Truth be told , future clients in their 30s and 40s are already depositing trillions of assets at big custodians like Schwab and Fidelity , and they want a different set of services than clients over 50 . The problem is determining what young investors , whose preferences are still being formed , really want or what their expectation of an advisor is .
Specialist Firms Likely To Surge
Small generalist firms remain the largest single group of advisories , despite the wave of consolidation during the pandemic . In the coming years , firms focusing on younger clients , often charging subscription fees , are likely to find it to their advantage if they specialize in solving the “ problems of a narrow group of clients ,” Hurley writes .
By building such a set of skills , these specialist firms will have far more efficient operating models than generalists ,
“ As we see in other professions , the level of segmentation will become even more sophisticated — not just based on assets , but on life cycle , source of wealth , catalyst for hiring advisors , philosophy around money and possibly even things like religious affiliation ,” Tibergien argues .
he says . Moreover , they won ’ t have to rely nearly as much on rainmakers .
Consider a firm in the Dallas-Fort Worth or Minneapolis-St . Paul market that establishes itself as the go-to expert for handling the financial issues of restaurateurs or dentists or car dealers . The client acquisition costs of this firm are likely to be far less than those of generalist firms forced to “ push ” prospects into becoming clients . Ultimately , the impact on profitability is likely to be dramatic .
“ As we see in other professions , the level of segmentation will become even more sophisticated — not just based on assets , but on life cycle , source of wealth , catalyst for hiring advisors , philosophy around money and possibly even things like religious affiliation ,” Tibergien argues .
Will the squeeze on the profit margins of generalists be as severe as Hurley anticipates ? That remains to be seen .
Many think the biggest obstacle to firms ’ success will be the difficulty in finding and developing new talent . A firm that struggles with this might remain profitable , but it will also remain small , since its growth potential is likely to be limited .
“ The talent shortage has been a problem for years and has truly become acute in the last decade ,” Tibergien says . “ As a profession , we have not done a good job of making this a compelling career to pursue , though by all measures it should be .”
Redefining Holistic Advice
What about the nature of the advice these firms are giving ? Michael Nathanson , chairman and CEO of the Colony Group , one of the largest firms in Focus Financial ’ s network , expects consumers of financial advice to “ demand much more from their advisors , and advisors will successfully respond to these demands . Targeted , goals-based asset management services will be complemented not only by core financial planning services but also by tax-compliance , bill-pay , credit-monitoring , family-governance , legal , trustee , and even private-banking services ,” he says .
Ultimately , advisors ’ offerings will extend to “ non-financial life-enrichment and lifestyle services , such as travel and health-concierge services , as well as other services such as career-coaching , next-generation financial education , security , and cybersecurity services ,” Nathanson predicts . Advisors who think these services are beyond their expertise will likely partner with those more expert “ so that clients seamlessly access what they need from a single point of contact .”
Nathanson also believes that just as there is a field of precision medicine , there will emerge a field of “ precision advice ,” which will be a key value offering for both large , diversified firms and boutique advisory shops that can serve specific types of clients . Precision medicine offers more effective outcomes , he says , because “ it targets the specific needs ,
16 | FINANCIAL ADVISOR MAGAZINE | MARCH 2024 WWW . FA-MAG . COM