Page 22 - Investment Advisor - November 2021

RIA LESSONS & LEADERS

By Jeff Berman

The 5 Trends Shaking Up the Advisor World

A new wave of technological disruption is here, Michael Kitces says.
What’s an advisor to do?

s technology continues to drive
significant changes, advisors
A must learn to “evolve” to sur-
vive and thrive, Michael Kitces, head
of planning strategy at Buckingham
Wealth Partners and executive chair-
man and co-founder of XY Planning
Network, said during a Fearless
Investing Summit in Palm Springs, 2. THE ‘GREAT CONVERGENCE’ OF boomer retirees have been targeted
California in late September. INDUSTRY CHANNELS. because that tends to be where all the
He sees a revolution now in the world For decades, advisors and broker-deal- assets are, Kitces noted. Most advisors are,
of financial advice, and discussed five ers were in two entirely separate chan- therefore, competing for the same clients
trends reshaping the business: nels. Over the course of about 40 years, and there are only so many assets, he said.
due to “technology pressure,” the chan- Among investors, there are delegators,
1. TECHNOLOGY IS AGAIN nels ended up converging. who tend to be the best clients, and the
REQUIRING ADVISORS TO OFFER That is why there has been such a big self-directed clients who only contact an
CLIENTS MORE VALUE. “fiduciary debate” over the past 10 years advisor if they are really bad at it, he noted.
Advisors must always figure out a way or so and why there are more regula- Then there are the “validators,” the
to add value to their clients to stay a step tions in the industry now, he noted. biggest group of potential clients, who
ahead of technology, according to Kitces. With the rise of the “hybrid” business just want to “validate” they’re on the
“All of it starts with the technology,” he model in recent years, “today, almost right track with their own planning and
said, noting that Charles Schwab founded 90% of all advisors and independent only want to “buy a couple of hours of
his company in 1975 as a “tech startup broker-dealers are dually registered as a your time,” he noted.
to disrupt the human financial advisor.” broker and an investment advisor.” The AUM business model only works
Ameritrade followed shortly after that with the delegators, according to Kitces.
and then E-Trade, Kitces said. The late 3. THERE IS A CRISIS OF Because there are about 7 million U.S.
1970s to early 1980s was a “giant technolo- DIFFERENTIATION AMONG households with baby boomer delega-
gy boom” with discount brokers out to put FINANCIAL ADVISORS. tors and about 300,000 U.S. advisors,
human financial advisors out of business. Advisors need a better, clearer way to dif- each advisor can only get about 23 of
Once technology enabled just about ferentiate themselves, according to Kitces. those investors as clients, he said.
anybody to buy mutual funds on their “The number one way by far that advi- “It’s getting crowded” as more bro-
own, advisors changed their business sors differentiate themselves is their abil- kers leave their channel and enter the
models again, offering value through ity to understand their clients’ needs and AUM business model, he said, adding
diversified portfolios and other services objectives,” he said, pointing to third-par- these factors are what is driving the shift
clients couldn’t find anywhere else, he ty data showing 76% of advisors gave that to the fee-for-service business model.
said. Then came rebalancing software answer in a survey. “This is not really how
that enabled advisors to do the same you differentiate yourself. This is how 5. THE EVER-GROWING FOCUS ON
thing that only turnkey asset manage- you get not sued. It’s literally a legal regu- THE CLIENT EXPERIENCE.
ment programs did before. And then latory requirement” for advisors, he said. The internet significantly hurt travel
came the robo-advisors, he noted. agents, Kitces said. But many survived
“We are at the crossroads again,” he 4. THE SEARCH FOR NEW by offering clients complete travel expe-
said, noting consumers now have access BUSINESS MODELS. riences. Advisors must “evolve” the same Adobe Stock
to rebalancing software also. Under the AUM business model, baby way in order to survive, he said.

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