Kitces: Pandemic to Accelerate Shift to AUM-Based Fee Model

The "underlying challenge that we created in the first place [is] when you run a more transactional model, you're always feeling that pressure of where does that next prospect come from and then, when you get a disruptive event like this," you now have to reinvent all your marketing to figure out how to get clients virtually because the old methods no longer work, he argued.

Advisors still have to figure out how to grow at some point, he conceded. And an advisory firm must spend enough on marketing to grow the business, but not "grow yourself broke" by spending so much that you go bankrupt before achieving profitability while growing on a long-term basis, he noted.

The Importance of Differentiation

Asked how advisors can compete against 0% commissions and robo-advisors, he said it all comes down to "differentiation." There is a major technology revolution every 20 years or so and technology keeps making it easier for consumers to make investments on their own, he noted.

However, he said: "The need for advice — and more comprehensive advice — only grows as we go through all of these inflection points…. Some of us keep doing whatever the old model was and we get a good run at it for a while…. It never kills the advisor. It forces us to move up the value chain" and specializing and finding other ways to stand out from rivals.

Other Kitces tips for advisors included blocking hours on daily schedules for important business activities to minimize interruptions.

When it comes to video marketing, meanwhile, he cautioned that video has to be "part of a funnel — it can't be the thing in and of itself." Nobody is going to select an advisor to handle their life savings because of a great video, he said, adding that's "not how people make decisions."

— Check out Ron Carson: How the Pandemic Will Shape the Future of RIAs on ThinkAdvisor.