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Tracking Tectonics


n our upcoming Insider’s Forum conference, which is just days away as you read this, we’ll be doing things you won’t see at other industry meetings.  One of them is exploring a few of the huge tectonic trends in the profession, starting with the past, taking them up to the present, and then extrapolating where that momentum is taking us in the future—not only so that we can prepare for the next iteration of the profession, but also so that we can become leaders for positive change.  (Our conference ‘niche’ or ‘target market’ is advisors who accept the responsibility to be leaders in the profession.)

What are some examples?  I think we all know about the long, slow transition from sales, to service, to expertise and advice, and how the early promoters of the trend were rewarded with a first-mover advantage.  Some of the earliest advisory firms to build equity value that could be transferred or sold were those who gave up commissions when those around them were raking them in.  

Projecting that forward, one might surmise that the profession will eventually move off of the AUM revenue model, which the brokerage firms have adopted so that their brokers can ‘gather assets’ in the guise of professional advice.  The early-adopter advantage would be more publicity from the consumer press and a stronger claim to forging true fiduciary relationships.

A more complicated example is software.  In the early 1980s, the fintech universe consisted of something called PLANMAN, MoneyTree and Financial Profiles for the planning calculations, dbCAMS and ProTracker for very basic CRM and, well, those were pretty much your choices.  

The trend to more and better fintech solutions started slow, picked up steam through the early 2000s, and today we have a bewildering array of software programs, by our survey count, more than 500, and the categories have multiplied (metastacized?) to more than three dozen.  Private equity firms are now heavily investing in the space, and the emergence of new platforms has created new competition for the custodians.

The most direct consequence so far has been that smaller advisory firms were gradually, and then fully, able to provide tech-leveraged services to their clients that were equal or superior to larger (brokerage) entities—democratizing the industry in ways that none of us could have imagined.  You can see the trend, and you can see where the momentum is taking us: more and more and more tech solutions in an increasingly crowded space, simultaneous with purchases and consolidation by a growing number of private-equity funded platforms.  But where will that lead the profession?

We have moved from crude planning and CRM to programs that offer far more complex analysis and insight, where computer circuitry expands creatively into what were once areas that people had to think through.  As a result, more and better software has tended to drive the human professionals to seek higher ground in terms of service and advice.  As software automates the process of putting portfolios on the efficient frontier, and now handles the heavy lifting of harvesting tax losses and rebalancing, portfolio management becomes increasingly commoditized.  Performance reporting used to take an all-hands-on-deck week-long effort at the end of every quarter; now the data flows automatically to a client portal.   

Increasingly sophisticated tax planning programs (Holistiplan and FP Alpha) are making the once-complicated art of building tax projections for clients less labor-intensive and more automated.  With EncorEstate, you can have clients fill out a series of questions and their will, living trust and power of attorney documents are automatically populated and ready to sign.  With Income Lab, you can automatically model all the various tax-aware decumulation strategies in retirement, and monitor a client’s retirement sufficiency in real time.

Which means?  If we take this trend just a few years into the future, it becomes obvious that the soft skills, the ability to help clients articulate their goals and coach them to reach them, and to be a thinking partner in the journey, and to be expert at helping them navigate traumatic events (Susan Bradley of the Financial Transitionist Institute is one of our speakers) become increasingly important.  Beyond that, specializing in providing deeper advice to a particular group of clients whose challenges you understand at a deep level creates a much more focused and valuable platform for delivering creative (non-tech-related) planning expertise.  The tide may be rising, but the safer high ground is still visible—and attainable.

Meanwhile, the   encroaching automation/commoditization of asset management and other services will reinforce any trend toward replacing the AUM revenue model.

I mentioned that the salespeople in the profession’s early days were pretty much all men.  I used to wonder about that—even as I recognized, in a different part of my brain, that the sales culture was fundamentally predatory, even as the men I would hang out with at the conference hotel bar were regaling me with crude jokes and telling me, with a wink, that in sales every ’no’ response took them one step closer to a ‘yes,’ and the same strategy applied to picking up women.

For a variety of reasons, I think an aggressive sales culture is fundamentally antithetical to what most of us think of as feminine sensitivities, and any women who might have been attracted to it would have had to put up with a lot of rough aggravation.  (Some of them told me stories.)  

The trend since then, throughout the profession, has been, simultaneously, less sales culture, a more nurturing client experience, more emphasis on the soft skills of relationship building and empathetic listening—and a higher percentage of women, year over year, attracted to and succeeding in the profession.  A reasonable extrapolation would see at least equal numbers of women and men in the profession in the not-too-distant future.  It’s possible that we could tip beyond a 50/50 mix; more women than men, the way it used to be more men than women.

I’ll offer one more topic we plan to talk about: practice management.  The concept didn’t exist in the early 1980s, because at the time nobody thought that their sales activities were building equity value (probably because they weren’t), and staff management was focused on being an adjunct to the charismatic sales person who was the hub of the OSJ.  The concept of professionally managing an advisory firm only came about when a few advisors started building their revenue models around fees, and with the emergence of multi-partner firms in the late 1990s.

The trend has been toward more management expertise in more firms, but I don’t think anybody would accuse today’s advisory profession of having universally applied best-practice business management principles.  Part of the problem is that ‘best practices’ has been a moving target; that is, we’re seeing the evolution of larger firms that require different management skills, and at the same time the profession is having to evolve career tracks, not only for advisors but also for their operations teams.  And, of course, we’re now throwing remote work into the mix.

We can see the momentum, but where is it leading us?  I think the relatively new shift from a buyer’s to a seller’s market in advisor and operations talent is forcing a lot of advisory firms to put themselves on a more solid business footing; otherwise they will consistently lose out on the new hires that make growth possible.  (Who wants to work for a sloppily-managed firm?)  Better management is, in other words, an accelerating trend; those that don’t embrace it will be acquired by those that do.

In the near future, I envision emerging best practices for internal career development, more creative compensation and benefits structures, and a new outsource ecosystem for formal career training, pioneered by companies like The Ensemble Practice with its G2 Leadership Institute.  

Over time, advisors will get better training to become better advisors than we have ever seen in the past, and ops professionals will be better at business management than we would have dreamed about ten years ago.

At the same time, there has been a practice management trend toward ever-greater efficiency in advisory firm operations.  In many cases, this has been beneficial; we have seen the emergence of workflows and processes that have streamlined the business side of financial planning, and software like Hubly and Knudge that automate and track internal activities with greater reliability and precision.

But in the future, I envision some push-back on this road to ever-greater efficiency.  We are already seeing some discussion around the tradeoffs between efficiency and effectiveness, where sometimes the streamlining comes at a cost to client service.  Julie Littlechild, of Absolute Engagement, who is keynoting at our upcoming conference, has talked about how some of the best advisory firms are reducing operational efficiency with additional touches and check-ins during the client onboarding experience, and Philip Palaveev of the Ensemble Practice has warned that larger advisory firms are in danger of over-automating client service practices and thereby reducing the personal touch and a certain creativity in client problem-solving.  

In the future, I expect the efficiency vs. effectiveness issue to become a dominant discussion topic in the practice management space.  Planning firms will continue to advance their internal efficiency, but some effectiveness guard-rails will evolve and become more sophisticated.

The loser in all of these tectonic developments is the wirehouse business model, which has seen its tech superiority diminish to sclerotic inferiority, and is now in danger of losing its ability to pretend its revenue model is the same as independent professionals.  Brokerage firms are increasingly facing larger, stronger, better-managed competition from better-trained independent advisors, many of them women who intuitively grasp the new service and advice models that cannot be replicated by software.  Meanwhile, the career development trend and university training for financial planners are making independent advisors more technically sound than their brokerage competition.

I think you can see that we’re going to have a good time exploring these topics, and I know that my fellow panelists are going to go way beyond the scribblings I offer here.  But the essential point is that we can get a few glimpses of the future by looking at the past, and then the present, and seeing where the powerful tectonic momentum is pushing us.  Many of our conference attendees were involved in creating that momentum, and they will get a clearer idea of how and where to push in the years ahead.