Q: What trend in the advisory space are you most paying close attention to?
BRAD SHEPARD: The concept of growth. We’ve had such market growth for the last 10 years it overshadowed a lack of new customer acquisition. The industry's assets under management grew, but because of market growth, not because we’re doing a really good job of attracting new customers. As soon as we have something change in the market, I think you are really going to see who the winners and losers are as far as the ability to grow AUM.
What I’m not saying is because you’re not growing new customers, your business is going to go under, right? I’m saying if you want to continually grow, it requires a new set of tools, that’s all. So winners to me mean firms that continue to grow. I don’t think all these firms are going to fail necessarily because there’s other ways [to remain sustainable]. If you can’t grow there’s other things that you have in your operational toolkit to maintain your profitability which are not fun, i.e. cost-cutting.
But does that growth come from advice or does that come from product?
On the retail side, the FA side, I think it’s both. The industry is getting squeezed from the asset management side, as well the retail management side. So the whole value chain has to continue to get more efficient. That’s not even a question. Growing your business on the top line is the best answer, right? I think in this industry, people don’t become financial advisors because they’re awesome business development marketers, at least most of them don’t. They get into it because they really care about financial planning and the financial well-being of their customers. That is a very different skillset than what it takes to understand marketing, the way it’s changing the environment and how to acquire new customers.
Don’t even get me started on generational wealth and the different buying habits of millennials. We just finished our study — we had over 5,000 high-net-worth people come through our research process. It was super telling about who is going to be the next generation of customers and how their minds work around how they think about financial advisors. It’s very different than the way boomers think.
Let me give you an example. If you ask, who do you want to attract, most advisors will tell you they want a person that’s got a million-plus dollars of net investable assets. Largely those people are boomers. However, we looked at pricing and attitude and here’s what we found: In general, a high-net-worth boomer would like to pay less than half-a-percent, all in, for their services. From an advisory standpoint, they also require a whole lot of your time. But a millennial who has a high growth trajectory — they’re in the right field, they’re going to make a nice income and also expects to inherit over $2 million in assets — is willing to pay up to a percent-and-a-half if you deliver services very specific to them. It’s not performance, by the way. The number one thing for them was access to real-time communication and frequent information.
So what’s playing in my mind a lot right now is, just how well-tooled is this industry for what’s important to these people and how we are discounting them? A lot of older advisors think a millennial is a 29-year-old old living in their parents’ basement and that’s simply not true. The high end of millennials is now between 36 and 38 years old, depending on whose research you use. So there are people that are high-income, high-growth, high everything, and their needs are not going to be met properly if we don’t think through that better.
Do you think that the way advisors communicate ideas and planning has to change, too?
No. In our research we quantified 27 trigger events in a prospect’s life that lead to either hiring or changing financial advisors. So to your question, I think it’s those kinds of things that sometimes the industry has been very out of tune with. For instance, most clients and prospects don’t care about our emerging market strategy. What they care about is that they just experienced a trigger event, like exiting a business. They reached the milestone age of 40, or they got a big promotion at work and now they have more equity in the company. Those are the things that we need to be talking about, because that’s what customers care about. How we translate that into a strong financial plan?
What then should advisors be doing to get better at making that communication more valuable?
They have to be communicating about events that are going on in a person’s life, not about financial strategies. I don’t believe we see that very often. What you see is a lot of cookie-cutter stuff. Take the term goal-based planning. When I hear things like goals-based planning and retirement I’m like, wow, did I need somebody to tell me that? What’s important to note, though, is that triggers and goals are different by generational segment. From our research, retirement was clearly the top goal for boomers, but it wasn’t for millennials, Gen X and Gen Z. For Gen Z, which is 24 and under, it was starting a savings plan. So are we communicating, whether it’s through our clients to their kids or to the kids directly, about how to start a savings plan? Sometimes it’s that simple. Again, it’s back to life stuff, not products.
How does artificial intelligence and data analytics impact that conversation?
Whether it’s AI, machine learning, natural language processing, throw in another buzzword if you want; at the end of the day we’re using large datasets to better understand the needs of our customers, based on their behaviors so we can have a better conversation. No client wants to go in and talk to an advisor and realize that the advisor just had the exact same conversation with 20 other customers or prospects. That's a total turnoff, versus going in and having a very tailored plan because of some help from a machine, whatever that might be.
Clients can look up advisors online and decide whether to do business with them. How has that changed the practice?
In our research, we found the main thing that prospects and customers were trying to ascertain about an advisor online before they would meet them was, are they going to act in my best interest? Now, how can advisors articulate that? The prospect doesn’t care about our regulations. The number one thing they said they needed was actual client testimonials and feedback. To some level we’re doing customers and prospects a disservice by some of the protections we’re affording them, because they can’t get the information they need to make an educated decision. Also, from our research across the different generations, 74% of these high-net-worth folks said that online information is extremely or very influential as to who they hire as their advisor. And furthermore, which is interesting, 46% said they have actually eliminated an FA from consideration entirely based on what they found or didn’t find online.
I do think the level of market noise is high and it’s only getting higher as people become more astute at marketing. I think it becomes more noise, which is harder when people rely on third-party sources that may or may not be the best. I hope at some point we figure out a way for a validated, accurate, client testimonials, just like you use for everything else in your life, restaurants, doctors, everything. I hope we can find a way to do that safely, because I think it would make such a difference for good advisors. Right now, if you are an advisory, you can be really astute at search engine optimization and marketing and developing a following on Facebook, but that doesn’t make you the best advisor by a longshot.
