Advisor tech poised to transform fees: Q&A with Cetera President Adam Antoniades
DENTON, Texas — The specter of ever-lower fees is haunting planners. More than seven in 10 advisors are concerned about the impact of fee compression on their business, according to Nationwide’s most recent study of more than 1,700 advisor and individual investors.
New technology offers a solution, says Cetera President Adam Antoniades. Not only can digital tools allow advisors to serve more clients, he says, they can help advisors set fees with greater accuracy.
Antoniades says by charging for the services that advisors are actually providing — like financial plans and risk analysis tools — technology may help the industry evolve beyond charging for a percentage of assets under management.
“The best way to think about it is that we have increased demand for financial advice from clients; an advisor shortage of supply because advisor are retiring; and, all of a sudden there are compressing margins,” Antoniades says. “It defies all concepts of supply and demand.”
Some fintech upstarts have already tackled the billing process by allowing advisors to unbundle the AUM fee into segments with flexible billing options like one-time payments, subscriptions or recurring fees. AdvicePay, a billing platform co-founded by Michael Kitces and Alan Moore, recently raised $2 million to bring the technology to enterprise clients.
Cetera closed on the largest independent broker-dealer sale of 2018 by selling a majority position to private equity firm Genstar Capital. The reported $1.7 billion deal helped Cetera build out its new recruiting team and rollout new financing and equity participation programs.
Antoniades sat down with Financial Planning on the sidelines of the T3 Advisor Conference to talk about how technology is disrupting the current financial advice pricing model. He also spoke about the future of consolidation in the RIA industry and what happens if tech firms like Microsoft or Amazon were to enter wealth management.
Q: What are the biggest headwinds for RIAs?
ADAM ANTONIADES: RIAs have lived a storied life. They haven’t had the scrutiny from a regulatory standpoint. The regulatory framework wasn’t there to apply the oversight. That’s changing. We’re seeing it ourselves and anecdotally, people are being examined more closely by the SEC. That’s going to drive up costs for RIAs. When and how we are going to price ourselves, including planning fees and retainer fees within the RIA framework? More and more businesses are going to end up on the RIA side, but that’s going to create challenges.
At the end of the day, it’s a highly fragmented profession and we’re anticipating only a few brands will be left standing. Aggressively upgrading the tech stack is going to be a differentiator. I can tell you, firms with $100 million in revenue can’t afford the tech stacks that large institutions offer. Firms with $5 million clearly can’t afford it. We’re going to see rapid consolidation.
What is the value of technology?
Technology is key ingredient to future success in that it brings scalability to an advisor practice. In a world of compressing margins, it becomes critical to serve more clients with the same overhead and that is at the heart of the challenge for many advisors. Secondly, crystalizing the value of advice that the advisor has been giving away for free. Our pricing model is based around asset management, but that’s not where we deliver value. We continuing to see this disruption.
Do you build or buy new tech platforms?
We tend to outsource our capabilities. The new world of technology is evolving at an outstanding pace. We try to leverage third parties where we see a clear competency and focus on the integration and experience.
As a hybrid broker-dealer, do you prefer a fiduciary standard?
It’s going to iterate. We’re in favor of a uniform standard of care that creates a level playing field for how advisors are being held accountable for give advice. A fiduciary standard is critical, but a uniform standard is even more critical. Clients don’t distinguish between a BD or and RIA — conversations don’t begin in that fashion. It’s in the disclosures, but they’re so burden that I don’t think anybody reads them. We’re in the fiduciary era. It’s the right thing, but it needs to be deployed in a balanced way that doesn’t favor one investment vehicle over another.
What is your take on the SEC’s Regulation Best Interest rule?
As it relates to disclosures and to some of the nuisances, some of the rules are going to be different and that is fine. But as it relates to creating accountability and oversight, there should be a level playing field. There is no scenario where a financial advisor governed by an RIA framework should receive an audit every 10 years, but one under a BD receives an audit once a year. There’s no logic. In the scheme of things, the fiduciary standard seems like a simple thing, but in reality, it’s very complex. The standard shouldn’t inadvertently force advisors to abandon certain investment vehicles, particularly for smaller investors.
Will the FAANGs enter wealth management?
There’s a huge learning curve and a massive challenge relative to the regulatory burden. In Silicon Valley, most tech companies will tell you they steer away from industries with high regulations because it’s just too much of a burden and there is so much opportunity elsewhere. Do I think they will make a move into the market? Of course. But it’s much more difficult to make inroads into highly-regulated industries.