One of the most important keys to longevity in anyindustry is to recognize and adapt to major structural shifts in order to avoid becoming extinct. The last major paradigm shift in our industry was the move from commissions to fees. This shift has lasted about 15 years and is still continuing. It has been a major boon for independents, who led the charge as big full-service firms held onto commission-based models.

Today, another paradigm shift is looming. Just as the dinosaurs got wiped out 65 million years ago because of climate changes they could not adapt to, we think independent advisors are threatened by a new climate of competition. How many of them are taking steps now to avoid going the way of the dinosaur?

The New Competitive Climate

Most independent advisors compete with a similar story: They charge a low fee for a no-conflict investment solution (i.e., no proprietary products). But this competitive advantage is rapidly eroding. While independent advisors have been bogged down in the details of running their businesses, the full-service firms have gotten smarter and are leading the charge to take the entire industry to the next iteration. Here's how the big national firms are changing the landscape:

• They are no longer dependent on proprietary products. Their size gives them the ability to access superior managers and research at competitive pricing.
• They charge a lot less than they used to. Last decade, it was not unusual to see full-service brokers charge all-in fees of 2.5% to 3% for separate-account wrap portfolios. Today, that pricing is closer to 1.5% to 2%.
• They are starting to secure both their clients and their advisors by using a multiple-hook strategy. Most large firms have expanded their services to include outside investment managers, mortgages, banking, credit cards and, most important, a holistic, wealth-management perspective to link it all together (witness Wachovia's Envision and the Ameriprise Dream Book). This shift to scalable, life-relevant advice, rather than comprehensive financial planning, is the wave of the future. It will affect both investment-focused advisors and financial planners.

None of this bodes well for the independent advisors without a plan, especially those with limited resources (less than $400 million in assets under management), who make up 90% of the independent advisory universe, according to Moss Adams. How will the independent advisor compete? Step into the future:

• Start providing scalable, life-relevant advice. A recent Moss Adams study analyzing investors' preferences found that 81% of individuals want comprehensive advice, while only 19% of these clients are interested in investment management alone. Yet many firms that claim to provide wealth advice are little more than repositioned investment advisors. In the new world, client meetings revolve around helping clients live their best financial life, not on investment results for the quarter. Find a scalable way to deepen and expand your client relationships.
• Concentrate your time where you're worth the most. If you move away from your core strengths, you diminish your value and your ability to remain competitive. This shift has created a rush to specialization. Invest in people and solutions that free you from daily minutiae. Spend your time refocusing your company on your clients' complete needs.
• Drive down costs by joining forces. Outsourcing solutions can give you many of the tools available to larger firms at very competitive costs.

Paradigm shifts take many years to evolve. Firms that prudently invest in themselves now, or partner with firms that have the infrastructure in place, can reinvent themselves for the coming shift and will thrive in the new world.

Joseph J. Duran, CFA, is the co-founder and CEO of United Capital Financial Partner, a transformational acquirer with over $8 billion in client and institutional assets.