Do RIAs have a false sense of security?
RIAs may be riding high, but they're not immune from disruption by industry rivals and innovators.
That was the sobering message delivered by Matt Brinker, United Capital's chief business development officer, speaking at SourceMedia’s In|Vest conference in New York.
Brinker pointed to other industries seemingly at the top of their game that fell victim to disruption from innovators in their markets.
The value of a New York City taxi medallion, for example, reached an all-time high of $1.3 million in 2013. But after Uber and other innovative ride-share companies disrupted the urban transportation market, medallion valuations have plunged 85% to $186,000.
Likewise, RIAs may have developed a false sense of security from a steady drumbeat of stories heralding the decline — if not the demise — of wirehouses, Brinker said.
But he pointed out that in fact, Merrill Lynch and Morgan Stanley reported record first-quarter revenues, and those wirehouses, in addition to UBS Wealth Management and Wells Fargo Advisors, have vast capital reserves dedicated to innovation and are "thriving."
Brinker also pointed to the success of the digital initiatives of Charles Schwab and Vanguard, whose Intelligent Portfolio and Personal Advisor Services divisions,respectively, have racked up billions of dollars in assets under management in less than five years.
"Advisors have to be thinking about the fact that those assets came from somewhere," Brinker said. "It's a zero-sum game."
Not coincidentally, Brinker cited statistics showing a decline in the percentage increase in RIA client acquisition and asset and revenue growth.
To stave off disruption, advisors need to become a destination for next-generation talent and clients and have a value proposition to justify fees of 125 basis points, Brinker maintained.
How can advisors achieve that goal?
Emphasize behavioral finance and coaching to help clients understand their emotional bias in volatile markets, Brinker argued.
"[Wealth management] is a zero-sum game," says Matt Brinker, United Capital's chief business development officer.
He pointed to the success of United's "financial life management" strategy, which has resulted in more than $22 billion in AUM spread across 85 locations around the country.
Other RIAs can also become destinations by focusing on technology upgrades to augment a thin talent pool, Brinker said.
Fintech tools that are "nimble, dynamic and scalable," he explained, should be utilized "to make average advisors better."
Advisors should also work on differentiating themselves more and spend more money on training, coaching and business management, Brinker added.
A destination firm also needs to enhance its equity value for a sale in the future.
"Advisors who have had a lifestyle business and are expecting an enterprise valuation have to make a choice," Brinker said. "You can't be both."