Over the past few months, I’ve met with more than two dozen advisory firms and attended a number of key industry conferences. After writing down some insights I gleaned from those conversations, as well as some of the critical themes I’ve been thinking about throughout the year, I've compiled a list of the 16 trends that I expect we’ll see in 2016.

1. This is still a business of small firms. 

According to Cerulli, the average RIA has $67.4 million in assets under management.  That means of the 11,000-plus SEC-registered firms and another 20,000-plus state-registered firms, most of those firms are solo practitioners with less than 100 clients. 

2. But big firms are getting bigger. 

According to some estimates, there are more than 500 wealth management firms with over $1 billion in assets under management. With the increasing M&A activity in the space — including some of those smaller firms —I don’t see this trend subsiding. 

3. Succession planning remains an opportunity and a threat.

According to Fidelity’s 2015 RIA Benchmarking Study, more than one in three firm owners are planning to exit the business within the next 10 years, but only 28% of firms have next-gen owners in place. Most firm owners prefer an internal succession, so they need to recognize the importance of identifying future leaders early on to enable them to choose the succession path they want. 

4. The digital advisors are gaining share, but ultimately the incumbents will be big players.

5. While all advisors will eventually digitize their practices to provide their clients with an online experience, most are still in the wait-and-see and planning phases. 

Firms should consider — now—five things before they implement a plan: their vision, target audience, value proposition, capabilities and go-to-market strategy.

6. Firms still have a difficult time differentiating themselves from their competitors

How do you stand out from the crowd in a people-based business? (Hint: it’s not by calling yourself a holistic wealth manager or a fee-based advisor.) Can clients and prospects clearly define what your firm stands for and is known for? Do you have a specialization?

7. There is an organic growth problem in the industry today.

Advisors should consider getting back to basics and focus on winning new clients. According to Fidelity’s 2014 RIA Benchmarking Study, RIA firms that are marketing leaders are 42% more likely to prioritize growth, dedicating more resources and spending 33% more on business development and marketing. 

8. There is no silver bullet technology solution.

Advisors should consider a few things when it comes to implementing technology: Are you providing investors with a compelling portal? Is your back office connected to the investor to enable paperless processing? Are you taking all of the information from different sources and aggregating them? How will you provide your advisors with an integrated desktop? What will you build vs. outsource?

9. There is a continuing talent shortage.

More advisors are over 70 than under 30.

10. The cost of compliance is likely to increase.

Activity in the regulatory space will be ramping up this year. Two acronyms to remember: AML and DoL. AML refers to the SEC's proposed anti-money laundering rules while DoL is used to refer to the Department of Labor's proposed changes to the fiduciary rule.

11. Referrals are still the No. 1 source of new business.   

12. The cost of client acquisition may be going up.

More firms are hiring business development officers, paying centers of influence for referrals, spending more on marketing and client events and discounting/waiving fees for new clients.

13. The breakaway broker trend is real. 

As my colleague Bob Oros, who heads the RIA segment for Fidelity Clearing & Custody Solutions, says, “Now is the time for big breakaways.” Why? Earlier breakaways paved the way and now big teams are finding exceptional quality in research, technology, client services and back office support.

What's more, the coming generational wealth transfer combined with the value that big teams have created within large institutions provides them with further motivation to go independent.

Also, advisors have the freedom to provide services and products that help best meet their clients' needs and can create high-touch service models with customized solutions and open-architecture platforms. 

14. Client demographics tell a somewhat frightening story.

More often than not, clients look a lot like firm owners. According to Fidelity’s 2015 RIA Benchmarking Study, 23% of clients are at least 70 years of age and they hold 28% of assets. What is your firm doing to engage with a family's second and third generation? Have you done a demography analysis on your book of clients and prospects?  Do you have a G2 strategy?

15. Investment management could become a commodity. 

Historically, alpha generation was the foundation of the advisor-client relationship. Now, the situation is flipping, because of technology and investor preferences. It’s critical for firms to build a solid foundation around the services that are much less likely to be commoditized.

16. Firms are taking a new look at what planning means.

It’s about life planning, not just investment planning or even financial planning.  Can you help your clients manage the moments of truth in their life?  That will be the core of successful financial advisory businesses in the future.

That’s a lot to think about — and that’s exactly why firms should have a strategic plan. Not just for 2016, but for the next 5, 10, even 20 years. Remember, if you don’t know where you are going, you may end up somewhere else.  So make a plan, break it down into smaller steps, and focus on the finish line.

David Canter is executive vice president, Practice Management and Consulting, for Fidelity Clearing & Custody Solutions.

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