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How Wealth Management Firms and Advisors Can Thrive as Prices Continue to Fall

Mike Langford
Aug 7, 2018

Over the past several years I have heard quite a bit of anxiety from advisors over the pricing compression trend in the wealth management industry. Fees have been falling for quite some time due to a variety of factors and it is only natural to be a bit concerned. To make matters worse the “fees are bad” and “you are paying too much” marketing messages are starting gain traction with investors.

Falling Prices Can Lead to Growth In Your Wealth Management Business

My advice to the advisors and firms that I work with is simple, don’t worry we’ve seen this in our industry and others. Any time there is pricing pressure in an industry it creates a ton of opportunity for the nimble business owners. Some advisors will panic and make unforced errors. Others will seize up and accept the fate of lower profitability. But you? You got this because you are actively thinking and strategizing about it now.

So what should you do to future proof your business? I have several suggestions.

Get More Cost Efficient

When prices fall margins shrink if costs aren’t reduced in proportion. So, one of the first things you should do is weed out unnecessary expenses. “Unnecessary” being the operative word. It is not advisable to just start slashing away like some crazed explorer hacking away in the jungle.

If your business is like most in the wealth management industry, you probably have a lot of opportunities for improvement when it comes to efficiency. Freeing up time and human resources by leveraging new technologies and taking a fresh look a business processes often has the dual benefit of reducing costs and freeing up capacity for new clients.

Not sure where to start? Consider hiring a consultant, like Jennifer Goldman, who specializes in helping wealth management firms improve their operational efficiency.

Scale Your Business

If you expect to be making less per client or per dollar under management one path to thriving in a lower price environment is to increase the size of your client base or the amount of assets you manage. Business owners have been using the “make it up in volume” approach for hundreds of years.

There are several ways to scale your business:

  1. M&A Activity - Merging with or acquiring another firm or individual advisor’s business is often the fastest way to scale. Bringing on large number of new clients, and their assets, will allow you spread operating costs across a larger base. In a declining price environment many advisors and firms will be open to selling or joining others to avoid being priced out of the market.
  2. Increase Share of Wallet From Existing Clients - It is highly likely that many of your clients have assets held away at another financial institution. Winning additional business from your existing clients is almost always easier than going out to land new clients. Meet with your team and develop a plan to expand your existing relationships. You will be able to scale your business without adding significant additional cost.
  3. Improve Client Retention - At first this may not sound like a growth strategy but in my experience firms with low client turnover rates grow much faster than those who lose a handful of clients each year. It’s hard to grow when you have a leaky bucket. If you focus on keeping clients happy, it will make it easier to increase share of wallet, improve your confidence when pitching for new clients, make your firm more attractive to M&A partners, and make the next mechanism for scaling your business much easier.
  4. Create a Referral Engine - Your existing clients have networks of people who are likely great fits for your wealth management business. These people need you and your clients can introduce you to them. All you need to do is create a process for generating referrals from your clients. Sometimes it’s as simple as asking your clients to introduce you to a few folks or inviting your clients and a few close friends to an “exclusive” event.

Add New Services

When prices on your existing services and products are being compressed by the market it might be a sign that it’s time to diversify by expanding your offerings. The good news is, your existing clients will likely be open to doing more business with you if the new products or services you are offering increase the value of your relationship.

If you are only offering investment advice and portfolio management maybe it is time to explore adding life insurance, estate planning, or recruit a CPA into your business tax and accounting work.

One service area where many RIAs are too often leaving a lot of business on the table is the analysis, evaluation, and management of private investments for their clients. If you are serving high net worth individuals and families, chances are your clients will be presented with opportunities to invest in startups, small businesses, real estate, and non-publicly traded securities. Why not consider offering help in these areas? You might also consider setting up a syndicate for your clients on AngelList where you can bring deals to them and earn a 15% carry in the process.

Change Your Business Model

Think about how much the wealth management business has changed over the past 25 years. When I got my start in the industry back in 1994 many “advisors” were still selling load funds aggressively. Then, as no-load funds started to gain traction in the marketplace firms shifted to fee-based accounts, wrap fees, and fee only (% of AUM) structures. Most recently, we have seen the fee-only model take over with model portfolios of low-cost index funds for asset allocation being delivered via direct-to-investor services (robo-advisors).

The way advisors make money changes over time. The fact that pricing for the management of a model portfolio is trending downward doesn’t mean you are providing less value to your clients. It just means the way you charge for your services and how you present that value to your clients needs to evolve. It might also mean that you need to re-examine what types of clients you serve.

I expect that many wealth management firms will be moving up market to serve families of higher net worth. It will make sense to incentivize clients to create extended family relationships to gain access to the premium services that your firm offers. Clients who value the white glove services and hands on attention will gladly pay for the exclusivity that goes above and beyond the results of the model portfolio.

Get Smart and Get Moving

You recognize that pricing compression is happening for some products and services. Analyze its potential impact on your business and start making adjustments.


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