SAN DIEGO - What do advisors need to know to have a viable business in the future?

Five key points, according to industry guru Michael Kitces, who, along with his business partner Alan Moore, addressed a standing room only crowd at TD Ameritrade's annual conference.

YOUNGER CLIENTS REALLY ARE DIFFERENT
“If you want to work with the next generation, practically everything about the service will be different," says Kitces, co-founder of XY Planning Network and a contributor to Financial Planning. For starters, Gen X and Gen Y clients "want to work with an advisor within 10 years of their own age."

Millennials still want an ongoing relationship with an advisor, even though they are used to communicating digitally, maintains Moore, XY Planning Network's other co-founder, who is in his 30s. "Young people don't want financial planning light," he says.


Industry guru Michael Kitces, who, along with his business partner Alan Moore, addressed a standing room only crowd at TD Ameritrade's annual conference. Image: LILA Photo for TD Ameritrade Institutional
Industry guru Michael Kitces, who, along with his business partner Alan Moore, addressed a standing room only crowd at TD Ameritrade's annual conference. Image: LILA Photo for TD Ameritrade Institutional


ADVISORS HAVE TO UNDERSTAND HOW MILLENNIALS THINK
"Millennials have different expectations about jobs and careers," according to Moore. "Young advisors see work/life balance much differently than baby boomers do."

Older advisors too often equate putting in long hours with accomplishment, says Moore, while younger advisors feel penalized if they get the work done quicker but don't stay late. "Their measure is getting the work done, not how long it takes to get the work done," he explains.

Moore also urges firm owners to "stop selling the unsigned promise of equity. It's burning out younger talent." If an owner has a succession plan that includes equity distribution, put it in writing, says Moore.


YOU CAN'T OUT ROBO THE ROBO!
Human advisors aren't going to beat digital advisors at asset allocation, account opening, or rebalancing, so don't try, says Kitces. Concentrate on what robos can't do — planning, strategy and empathy.

Just as the internet was novel 15 years ago and is now used by advisors, so, too, will robo software "be the platform we use to run our business in the future," Kitces asserts.

And don't shirk disrupting your current technology, Moore added. "If you're not replacing at least one of your technology tools every year, whether it’s a CRM, reporting or rebalancing system, you will be left behind."


DIFFERENTIATE, DIFFERENTIATE, DIFFERENTIATE
It's been said many times before but it's truer than ever, says Kitces: advisors face a serious crisis of differentiation. The practices of too many planners are too general.

In an era where Vanguard offers help from a CFP and digitized asset management for 30 basis points, that just won't cut it. "Advisors have to do a deep dive into a single niche market," says Moore.

Here's the question planners have to ask themselves, according to Kitces: "If someone typed the problem they need help with into Google, would my firm's name come up?"


TRY A DIFFERENT PRICING MODEL
Yes, we're talking about that old warhorse again — the de facto standard of charging a client based on a percentage of their assets under management.

During the conference's keynote address, TD Ameritrade Institutional President Tom Nally also issued a clarion call for a new pricing model.

In addition to the increasing commoditization of pricing from robo competition, there's another reason to start thinking about a flat fee model of retainers or charging by the hour, says Moore. And that's the fact that the millennials who will be replacing aging baby boomer clients don't have that many assets — now, anyway.

"There are people who aren't rich who need our help now, but will be rich later," Moore said. "Continuing to only charge AUM will limit your firm to a very small segment of the population."

Older advisors coasting to retirement probably won't have to change their AUM pricing, according to Kitces. But firms looking to grow face a challenge, he says. "It's going to be much harder with an old business model."

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Charles Paikert

Charles Paikert

Charles Paikert is a senior editor at Financial Planning. Follow him on Twitter at @paikert.