As more investors manage money with so-called direct providers, many advisors -- whether they're in the RIA or wirehouse spaces -- worry they'll be left in the dust, says Cerulli Associates' Bing Waldert.

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Assets with these direct providers grew to $3.7 trillion in 2011 from $3.4 trillion in 2010, according to a Cerulli report released in March.

The real fear among advisors, Waldert says, is the potential loss of long-term capital. "Younger investors are less likely to use advisors as a primary provider than they were just six years ago, and they'll be more likely to continue using direct providers like Fidelity and ETrade in the future." In other words, a younger investor -- currently in the low to middle market -- has the potential to be a high net worth client within a decade or two.

"The most usage of direct providers to date has been for the middle market for investors with $100,000 to $500,000 in investable assets, along with younger investors," he tells me during a recent video interview. If advisors fail to market themselves toward low to middle market investors, the risks of capital loss could be felt decades from now.

The bottom line is that investors increasingly want more autonomy, Waldert says, especially following the financial crisis that caused widespread distrust of large banks and financial institutions. Advisors must compensate for this distrust if they want to continue to be successful. Here are his tips:

  • In changing the conversation, advisors should have more collaborative and consultative conversations with clients, rather than dictating the next move. Clients, especially younger clients, will research purchases and validate decisions within their networks, and advisor conversations should reflect that.
  • Advisors should consider bending their minimums to take on younger clients. These investors can grow with the advisor practice and have lower service requirements.
  • Advisors should continue to specialize their practices on specific types of clients. By focusing on a client niche, such as doctors, corporate executives, they can better deliver specialized advice and stand out from direct providers.


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