By Cyril Tuohy
The new crop of online and hybrid advisors crowding into the marketplace has traditional, full-service advisors asking the question: How can we compete?
First, advisors should incorporate into their practices the best features of online advice. This is not unlike traditional retailers who integrate online retailing into their strategy, according to industry commentator, author and University of Toronto faculty member Dan Richards.
Second, advisors need to move deeper into personalized advice and service, and away from quickly commoditizing, robotic aspects of the business.
Moving away from commoditization isn’t a challenge facing only advisors, Richards said. Doctors, lawyers and accountants also are facing the same challenge as technology upends their respective industries and business models.
So advisors certainly aren’t alone, but when developing a financial plan they need to focus on what their human judgment and experience can provide.
In the area of tax advice, meet with a client’s tax advisor to coordinate and minimize the bite of long-term taxes, he said. The absolute no-no: circulating articles and emails with tips and advice on reducing the tax impact.
Articles, tips and emails about tax reduction and deduction strategies, approaches to estate planning, and using life insurance and annuities to form the basis of an asset protection program amount to “table stakes,” Richards told InsuranceNewsNet.
Advisors can’t let that get in the way of “high-value” activity, Richards said.
If Richards' well-reasoned arguments about why advisors need to stick with “high-value” activity aren't enough, then perhaps the wise counsel of New Jersey-based insurance agent Vinnie Hirsch will do the trick. Hirsch joined the business in 1964 and is one of only five active Prudential emeritus agents with more than 50 years of company service. He said no agent can expect to survive without paying close attention to clients.
That part of the business hasn’t changed at all, said Hirsch, who has his office call or email every client quarterly like clockwork.
“Nothing really changes in this business: you have to prospect, find clients and service them," Hirsch told InsuranceNewsNet. "Do the proper type of work with them for their needs.”
The history of financial services — and many other industries — is littered tales of how the first wave of early adopters never rose to positions of dominance. Conversely, even industry stalwarts tumbled, victims of changing demand.
At times, customer service simply evaporated into the ether of offshore call centers. Other times, it was the standard bearers that landed them in bankruptcy courtesy of bad or even reckless management — Bear Stearns and Lehman Brothers, anyone?
If a skeptic of the traditional wealth management model as recently as 15 years ago had proclaimed that Merrill Lynch and its thundering herd of brokers and advisors might be extinct by the first decade of the 21st century, they would have been tarred and feathered.
Richards said the “tech wreck” was a turning point for traditional wirehouses as the online challengers decimated the old fee structure and exposed how poorly client interests were aligned with that of their advisors and brokers.
A look back at the disdain with which traditional financial services players looked down on challengers should serve as a warning, though, about how online advisors are real and here to say, even if not in their current form.
Vanguard Group founder John C. Bogle never tires of reminding the industry that no one took indexing seriously when he launched Vanguard in 1974. It took time, but 40 years after its founding the mutual fund complex is the biggest in the world.
Charles Schwab, who launched the first discount brokerage in the 1970s, was met with similar derision by the full-service, white-shoe firms.
Schwab’s emergence at the top of the discount brokerage heap speaks for itself, Richards said.
“Online advisors will exist but many will not be in their current form — that’s very fair and very typical of innovation,” he said. “Initial players generally are not the ones that end up being dominant players for a variety of reasons.”
The online model will play an important role in the marketplace. But it will take longer than many people think for the online movement to establish itself, and it will have to come paired with flesh-and-blood skill.
Surveys show that the more wealth investors accumulate, the more they want to deal with a human advisor, and only human advisors can craft a comprehensive financial plan that incorporates protection, investments and estate and tax planning.
“It’s very early days,” Richards said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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