Increase your assets. Hire more employees. Find more clients — the conversation at TD Ameritrade National LINC Conference revolved around one sentiment: Growth.
“There is incredible movement towards the RIA channel,” Tom Nally, president of TD Ameritrade Institutional, told Financial Planning in an interview at the conference. “We’ve been talking about if for 15 years, and we don’t see it slowing down any time soon.”
As the RIA industry evolves, it is more important than ever for advisors to keep from getting ahead of themselves. “That happens all the time,” Nally says.
Advisors should start small and be thoughtful around the experience they are providing. Piloting new offerings and testing new solutions should coincide with taking the time to listen to feedback every step of the way.
“You’ll be a one-hit wonder if you promise the moon and you can’t get up the hill,” Nally says.
After 25 years at TD Ameritrade Institutional, Nally shares his two cents on how advisors can navigate the shifting landscape of the RIA industry.
What are some of the changes you’ve seen in the RIA channel?
Consumers are more appropriately informed about the difference between a broker relationship and an RIA relationship, and what the fiduciary relationship actually means. That’s something we need to continue to shout from the rooftops, so we can get clients into the right channel early on in their lives. A lot of times people find an RIA after they’ve already had a negative experience from someone who sold them some type of high-fee product that didn’t necessarily fit their needs.
What’s something that needs to change in coming years in the RIA channel?
We need to find a way to engage younger people earlier. This is a big deal. The way that we build, we’ve kind of turned our backs on young professionals who are building their own wealth, but aren’t there yet. Everybody should hire a financial planner the day they graduate college. What happens is people wait until people are 45, 50 years old to hire a financial planner once they build a little bit of a nest egg of assets, and they’ve already made 20 to 25 years of financial mistakes. Many of those could be avoided by guidance from a planner.
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Why isn’t this already happening?
Billing on the total AUM model, it doesn’t make economic sense for a planner to take on someone like that, so we need to consider alternative fee models to better engage younger folks who are just getting started in their careers, so by the time they are 45, 50 years old they’ll be in far better financial shape than the previous generation.
What would that fee model look like?
I think there’s a lot of different options. There’s hourly, there’s minimum fees that you can charge. Some firms are out there experimenting with different fee models, but it’s just not broad enough. When people think about how they get paid, their head just goes to total AUM, and they box out an enormous part of the market that needs their help. I’m not suggesting pro bono work — I’m talking about the professionals that are doing well for themselves and have a nice trajectory towards the future. The middle class that will do well — we need to find better ways to engage them.
Is there a risk for advisors in growing too quickly?
Of course there is. If you get ahead of your skis from a growth perspective, that’s ultimately going to have a negative impact on the client experience. You need to be thoughtful about making sure that what you promise is what you can actually deliver in a high-quality manner.
What is a good way to measure that approach?
I would say start small, be thoughtful around the experience that you are providing, take feedback from your clients to make sure that they are pleased with the service you are giving them and they find value with the relationship they have with your organization. It’s just about doing things in the right way. The worst thing is you’ll be a one a one-hit wonder. You’ll be a one-hit wonder if you promise the moon and you can’t get up the hill. It’s something to be very cautious about, and that happens all the time.
What is the biggest challenge advisors will face over the next five years?
I think there are quite a few challenges on the horizon. I think it’s about keeping up with the changing technology, what the client expectations are regarding that change. Clients are comparing their experience with advisors, not just to other advisory firms or other financial services experiences, but everything in their life. You don’t necessarily always need to be the first mover, but you need to be thoughtful and understand what those expectations are and who you are being compared with.
What are other challenges advisors should be wary of?
I think the shift in demographics is a big one. The age of clients is getting older and older. The age of advisors is getting older and older, so you have to make sure you are replenishing those clients with younger generations and that you have the right people on your team that can relate to those younger generations. It’s a relationship business. It’s a people business. A 30-year-old doesn’t necessarily want to sit across the table from a 70-year-old as their advisor. It doesn’t matter if the 70-year-old is part of the conversation, but those clients want someone in the room who is working with them, who understands where they are in life and can relate to their own experiences and so on and so forth.
How are advisors making hiring decisions now?
One of the biggest things people revert to when they are hiring is to hire for experience rather than for capabilities. When you do that, you limit yourself to the size of the existing pie. You can never grow the pie of talent if you are always going after the same people that have experience. You have to get to know people, take a chance on people. Hire smart, passionate people that can learn.
