A mix of pressures coming at advisors from all sides has squeezed margins in the planning industry, says Bill Morrissey, LPL's executive vice president of business development.
LPL itself hasn't been immune. The company announced
But there are other factors at work as well, says Morrissey, who sat down with Financial Planning at the giant independent broker-dealer's annual Focus conference in San Diego last week.
Morrissey broadly cites "the changing demographics of the country" as a root cause for the downward pressure on profits.
More specifically, he identified the following key challenges that advisors must address.
- Complex needs. "I think the needs of the average investor have gotten a lot more complex," Morrissey says -- increasing the workload for the planners who serve them. A shift from defined benefit plans to defined contribution models has shifted investment risk to retirees. Meanwhile, the rise of the "sandwich generation" is pressuring a body of clients caring simultaneously for children and aging parents -- and forcing them to look more cautiously at their own future retirement years.
- Holistic planning. Simultaneously, the demand for comprehensive financial planning continues to trend upward. It's a service that only about half of LPL's advisors offer, though that number is increasing, Morrissey says -- and it tends to be more time-consuming than transactional investment advice.
- Shift to fees. Just as client needs (and demands) have expanded, the industrywide shift from transactional to fee-based businesses has reduced revenues, Morrissey says -- pressuring margins for many IBD advisors.
- Packaged approaches. Some advisors have chosen to simplify their investment approaches by using affordable packaged platforms and ETFs, Morrissey says. Yet those same tools have helped some advisors handle this load, but also reduced advisors' their profits.
- Volatility fears. As demands on their savings increase, investors are worried about volatility more than ever before. "I believe the risk tolerance of the average investor has changed dramatically," says Morrissey. That puts more stress on advisors: How can they get more return out of less risky investing strategies to cover so many needs?
- Compliance and regulatory needs. Compliance costs have been increasing and becoming more complex, Morrissey says, require advisors to invest more time and money in their infrastructure and documentation. Indeed, LPL's own profit drop stemmed largely from regulatory challenges, CEO Mark Casady said at the time, noting that the entire industry was being subject to "heightened regulatory review."
Against the backdrop of these ongoing changes, Morrissey says, LPL is working to improve technology and other support for its advisors.
"I think our job is to help advisors to give them more time," he says. "Technology is a great way to drive scale locally.
"If we can help you process your business quickly and more efficiently, ... that is going to save you time. We encourage our advisors to outsource anything we can do for them for scale."
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