Information About 3 Big Keys to Advisor Profitability
Many financial advisors are seeing their profit margins steadily shrink in the wake of increased pricing competition from robo-advisors and rising compliance costs that have been exacerbated by the new fiduciary rule that was handed down by the Department of Labor earlier this year. This margin squeeze is being felt at all levels of the industry, from solo practitioners to pension and mutual fund managers, and all indications point to this trend continuing for the foreseeable future.
Here are three critical factors that can help advisors to maintain their profits and grow their businesses.
Today’s financial consumers are demanding cutting-edge technology that allows them to access their money and monitor their portfolios at any time from their computers, smartphones and tablets. Advisors today need to maintain a strong digital presence in order to stay ahead of the competition; they also need to employ social media to their advantage. Online endorsements on sites such as LinkedIn may carry more weight today than other forms of prospecting, and advisors who are able to earn these client recommendations can keep themselves in the driver’s seat in their efforts to generate new business.
Clients who are provided with the products and services that really matter to them will be less likely to complain about fees or poor investment performance, but advisors need to be ready to justify the fees that they charge to their clients irrelevant of investment performance. Attracting millennial clients may be especially difficult, as this generation grew up during the subprime mortgage meltdown and the Great Recession. Many of them are skeptical of financial planners and expect total transparency from them before they will invest. Advisors can combat this tendency with a combination of the latest digital tools and human empathy and reasoning.
The Department of Labor’s new fiduciary standard has had an enormous impact on the retirement planning industry, and many financial advisors are being forced to restructure their business model and pony up additional money to ensure that they remain compliant. But advisors can also use this change as an opportunity to land new clients that may leave advisors who previously only met the suitability standard for their transactions. Many firms can stay ahead by recreating themselves to embrace the fiduciary standard and provide clients with top-notch services and transparency. Firms that fail to do this may find themselves falling behind in the race for new clients. (For related reading, see: How Human Advisors Can Compete With Robo-Advisors.)
The advent of robo-advisors is one of the biggest developments in the financial industry in recent years. These automated platforms can provide basic investment management to consumers at a fraction of the cost of most human advisors. But they have some limitations, and many advisors are choosing to employ these programs in their practices in order to more effectively scale their businesses and devote more time to dealing with the human element of their business. They’re also using them to perform more specialized transactions, such as working with stock options or buy-sell agreements. Many advisors are also adding additional services such as a free financial plan for their clients in order to add value and justify their fees.