In the late 90’s I joined Schwab’s Electronic Brokerage (EB) division. Before I joined, EB was effectively a separate company (e.Schwab) with its own pricing, service structure and client base. It was designed for investors seeking to trade online and on the cheap – $29.95. You see, the discount brokerage side of Schwab still charged significantly higher prices for trading – upwards of $80. Then everything changed and Schwab offered flat $29.95 pricing across all business units.

At the time, many of us at Schwab knew online trading was becoming commoditized and would eventually be a loss leader for other value-added services. Could we be seeing the same thing happening with investment portfolio management? Perhaps.
Wise Banyan (a newly launched robo-advisor) recently announced they’re offering portfolio management for free. Vanguard, Schwab, Wealthfront, Betterment, and Personal Capital are all offering low-cost portfolio management services as well. Their fees typically start at 25bps, which are a fraction of what a typical broker or mutual fund salesperson charges. Michael Kitces provided a good summary of venture capital chasing the robo-advisor market. Clearly, not all of these firms can survive, but some will fundamentally disrupt large segments of the financial services industry.
With an estimated 300,000 advisors servicing investors today, our fragmented industry is ripe for consolidation. Bob Veres has been blogging about this for a while. Many investment-only advisors will race to the bottom in trying to deliver a superior service while their margins erode from fee compression. On the other side, alpha-seeking advisors will likely continue to disappoint through investment strategies and tactics that result in market-lagging performance…and, more importantly, missed investor expectations.
What do you need to do as an advisor? Take 3 steps now:

  1. Become a 360 Wealth Advisor: You need to move beyond investment management and even financial planning. You need to take a proactive, consultative role in your clients’ lives to address their broader needs from retirement income to healthcare to legacy planning. Wealth management isn’t just for the wealthy. Anyone who is concerned about their family and community needs the services of a Personal CFO that can orchestrate all the pieces of their financial life—in conjunction with their expert team. Here’s a great way to start. But don’t go it alone; you’ll need a strong “expert team” as well.

  3. Build your Expert Team: In the olden days it might have been enough to have the name of a CPA in your rolodex, or even an Estate Planning Attorney to draft a will on occasion. But to truly be a 360 Wealth Advisor, you’re going to need strong relationships with eldercare professionals, private fiduciaries, reverse mortgage specialists and a contact at your local Social Security office (among others). You think the discount advice providers and robo-advisors will do that for their clients? No way. And if you need some guidance on how to best build those teams, you can get some insights here.

  5. Your Brand is Your Reputation: If you haven’t “Googled” yourself lately, you better start. And don’t just do it online—take it offline and start asking your existing clients what they think you do. William Chettle, Loring Ward’s CMO, provided some great ideas on what you need to look at to ensure your reputation precedes you in prospective client conversations. You want to ensure your “personal brand” extends well beyond the commoditized world of investment management. Once you’ve done your audit, then it’s time to think about whether you’ve built a referable practice.

With every challenge there’s opportunity. Online trading is now such a commodity that some firms are giving it away for free—including Merrill Lynch. (Ironically, it was Merrill’s CEO that once said that online trading was bad for Americans). Soap, salt, gasoline and water are all commodities as well. Yet brands like Dove, Morton’s, Chevron and Evian continue to command a premium.
Will you deliver enough value to differentiate yourself from the discounters and robo-advisors? I believe the solution is simple in the wealth advisory business. Do what the machines, the aggregators and the algorithms cannot: offer personalized, 360 advice in conjunction with your expert team.
IRN R 14-213 (Exp 4/16)