Advisors in general and plan advisors specifically will face a more difficult road ahead as margins grow thinner and clients become more sophisticated and demanding. This means that advisors have to become better business managers, not just better investment advisors or sales people. Here are three trends outlined in a recent Investment News piece written by industry professionals that advisors should pay attention to in 2014:
• Consolidation. The advisor market — particularly the plan advisor market — is severely fragmented. Couple that with major inefficiencies, margin pressure and a lack of resources, leadership talent and succession planning, and you can see why consolidation of advisory firms is not just likely, it is inevitable. More advisors are joining teams and combining forces to improve profits and deliver a better service to clients.
• Personnel Management. Unlike manufacturers or businesses that rely on expensive equipment like airplanes, service organizations rely more on their people, who manage their most valuable assets: knowledge, skills and relationships. Therefore, advisors should look at their employees as human capital, not human resources. Problems in this area include recruiting and training younger advisors, and designing not just an attractive compensation plan but a career path — while fending off online and traditional recruiters who entice those advisors with better offers. Firms need to be selective, on the one hand, and willing to invest in training, on the other.
• Moving from a Practice to a Business. Practices are led by technicians; businesses are led by managers and strategists. Sheridan Road, which was doing very well when led by a technician, blew up its business model 10 years ago when a sophisticated manager from outside the advisory industry envisioned a different way to run the business. Today Sheridan Road is booming, and consolidating other advisors into the firm. Businesses require strategic planning, financial reporting and measurement as well as sales and marketing planning and training and development plans. And new technology, which many smaller firms cannot afford, is required to achieve scale.
So what do you want to be — a practice or a business? Just like with DC record keepers, there’s little middle ground for plan advisors. The choice seems to be: Either to try to get bigger by forming or joining a team, or stay relatively small and run a top-notch practice. There’s no right answer — but you should at least ask yourself the question.
