"Physician, heal thyself."
This revered proverb often comes to mind when I'm speaking to wealth advisors. They're working so hard to help their clients achieve their financial objectives, but often don't focus enough time and energy on ensuring the long-term health and wellness of their business. That kind of client focus is totally understandable — even laudable — but it can be problematic if you're not giving your own company the necessary TLC to ensure future viability.
At YCharts, we find that our customers' time and fees are under attack. Advisors need to recoup time to develop and implement better strategies to justify their fees.
To help advisors understand how to get their valuable time back, I've put together a 3-part series of posts, based on the "Physician, heal thyself" proverb: This first post diagnoses the "symptoms" that many wealth advisors are dealing with; the second will help them understand and define what "optimal health" looks like; and the final post will help them develop the "path to recovery."
Part 1: Identifying the Symptoms of the Illness
Over the years, advisors have provided valuable perspective, coaching and guidance to their clients, especially in the category of growing their wealth. However, demographic, regulatory, and technology trends are now serving as the combined catalysts for significant disruption in the industry. It's important for advisors to first understand what is ailing them to subsequently innovate their way back to full health.
To that end, here are the key pain points that are impacting the thousands of wealth advisors we interact with:
1. Baby boomers are passing down their wealth.
According to a recent CNBC article, approximately $30 trillion of wealth will be transferred from aging baby boomers in the next 30 years. This is a massive risk to the annuity stream most advisors enjoy after decades of building their AUM. The fundamental challenge here is that the patriarch's progeny (and presumed heirs) are not like their predecessors.
The next generation of wealth holders is tech savvy, data-enabled, fiercely self-assured, and not easily impressed by a steak dinner or a chance to watch an NBA game in a skybox. They're using data to: 1) decide if they can just manage their wealth on their own and 2) make objective decisions on how, when and where they will invest their wealth, if they need help. It is far from a foregone conclusion that mom and dad's wealth advisor will have a role in managing their assets and shaping their financial future.
Wealth advisor, does this symptom, "My long-term AUM is at risk," apply to you?
2. Wealth advisors must justify their fees.
According to analysis on YCharts tools, only 8% of actively managed funds have outperformed the Vanguard 500 Index the past five years, and only 16% have done so over the past 10 years. This fact causes many individuals who leverage advisors to ask, "Why am I paying my advisor 1-2% of AUM annually? Should I refocus my efforts on my personal brokerage account and put all my assets in an index fund? Should I go the low-cost robo-advisor route?" Investors are becoming more and more analytical, and they don't quantitatively value or factor into the cost-benefit equation some of the financial planning and life advice provided by advisors.
Wealth advisor, does this symptom, "I'm regularly needing to justify my fees," apply to you?
3. The regulatory landscape has become increasingly complex.
