The broker-dealer industry is entering a period of historic change, one that is witnessing fundamental shifts in investor and advisor demographics and attitudes—and in the very nature of the advice model itself. Yesterday's advice model presented a simple choice for investors. They could do it themselves using online tools and resources and a discount broker, or they could work with an advisor on whom they relied to varying degrees for advice, planning and investment selection. But today we are seeing a significant convergence of the two models.
The phenomenon is being driven by "validators," our term for investors who want the benefits of having an advisor but also want to be more involved in the relationship and with their money. Discounters are responding with what I call the Do-It-Yourself 2.0 model (DIY 2.0): scalable advice enabled by an integrated mix of robust planning tools, one-to-one relationships and powerful websites, all working together seamlessly. DIY 2.0 is particularly attractive to Gen X and Y investors, who tend to be more tech-savvy and less trusting than previous generations.
Now it is time for broker-dealers to consider engineering a similar transformation, to explode the current advisor model and replace it with Advisor 2.0 and the New Advice Code. Doing so would set the industry up to capture a tremendous opportunity that is starting to unfold. Advisor 2.0 offers an unprecedented opportunity to leapfrog DIY 2.0 by taking the core of the broker-dealer model—the advisor—and combining it with the best of the discount model—online tools and channel integration—to offer a superior version of scalable, repeatable advice.
