There’s a popular saying in business that “what got you here, won’t get you there.”
While a generation of trailblazing registered investment advisers built their profession into a growing wealth management channel, advisers need to embrace technology, build trust in the marketplace and attract new talent if they want to stay on top, says TD Ameritrade Institutional President Tom Nally.
More than 3,000 independent advisers and industry leaders were on hand to hear Nally’s message an in a keynote address last month that kicked off National LINC, TD Ameritrade Institutional’s 20th annual conference for registered investment advisers, or RIAs, in Orlando, Fla.
“To keep their focus on clients in the way that has helped set RIAs apart, advisers are going to need the right tools in place, and they’re going to need to adapt to a fast-cbanging business environment,” Nally says. “RIAs can take advantage of the waves of digital automation tools and “big data’ insights hitting the industry right now. It’s a huge opportunity.”
Rather than feel threatened by technology that automates investment management and other tasks, Nally says, RIAs should embrace it. Not only can firms operate more efficiently with the right tools, but automation can free valuable time that’s better spent working with clients and building their businesses.
TD Ameritrade Institutional is helping advisers automate many aspects of their businesses. For example, more than 1,700 advisers on the TD Ameritrade platform are using iRebal on Veo to automate portfolio management processes, Nally says.
But Nally emphasizes that installing the latest technology by itself isn’t enough.
To get the best possible results, RIAs need to feed these systems heaping portions of market information and competitive insights, he says, and then use those “big data” analytics to benchmark their performance, identify ways to better manage their businesses, and source new growth opportunities.
To help bring big data capabilities to advisers, TD Ameritrade has agreed to acquire the assets of FA Insight, which it claims is one of the industry’s leading research and consulting firms. Through this combination, TD Ameritrade says, it and its clients will gain access to benchmarking data going back more than a decade, consulting tools, and annual research reports. TD Ameritrade Institutional clients, in time, will gain access to customized reports, giving them greater visibility into their businesses so they can make more informed decisions, it asserts.
The value of advice
Technology advances have impacted the RIA space in another significant way. The emergence of low-cost online advice platforms has shined a spotlight on investment management fees. Nally says RIAs, who provide a comprehensive range of wealth management and financial planning services need to do a better job articulating what they bring to the table.
Traditional pricing strategies, typically an investment fee based on assets under management, don’t truly reflect the value of services rendered and leave RIAs more vulnerable to fee compression. The challenge, Nally says, is to tell a better story about the value of comprehensive wealth management. Morningstar research, he says, shows that good planning decisions-separate from market outperformance-can increase an investor’s retirement income by as much as 29 percent.
“We need to shift the conversation from a focus on the price of advice to talking about the value that RIAs deliver to clients through good planning,” he says. “Research shows that objective advice and having a personal connection is more important to investors than price or beating the market.”
The RIA industry needs to tell its story directly to more consumers, Nally contends. That’s one reason TD Ameritrade Institutional has launched the Human Finance Project, a campaign that has encouraged hundreds of advisers to share their personal experiences in video recordings.
These stories and experiences, which TD Ameritrade Institutional will share through social media and other channels, could go a long way toward showing consumers why RIAs are a different breed of financial guide and the difference they can make in their financial lives, Nally says.
“When you consider that public trust in financial services is low, even lower than chemical companies, you see there’s a real need for RIAs to differentiate themselves and do a better job of telling their story,” he says.
One area in particular where RIAs need to tell their story is in Washington, where a number of issues that can impact the industry are being debated. One of the urgent issues at hand is the pace of Securities and Exchange Commission advisor examinations- currently once every 10 years on average.
This lack of oversight “is a powerful talking point our competitors use to sell against RIAs, and we need to take it off the table,” Nally says. “It’s really important that advisers act as their own advocates on this one, because trust and confidence is on the line.”
To make it easier for advisers to stand up and be counted on this and other issues, TD Ameritrade says, it created the Advocacy Action Tool, through which advisers can send messages directly to representatives in Congress.
Reaching for NextGen
The industry also must find ways to elevate its reputation among millennials, a generation that came of age during the financial crisis. That group of more than 70 million Americans is now the single biggest generation and the expected heirs to trillions of dollars in wealth. RIAs must turn this next generation into its next clients if it hopes to sustain the industry.
At the same time, the industry faces a dramatic shortage of advisers because too few millennials are ready to replace a wave of baby boomers heading into retirement. Nally says RIAs must expand their efforts to foster and hire a new generation of advisers.
For the past six years, TD Ameritrade Institutional has invited undergraduates to its national conference and has committed $2 million in scholarships and grants over ten years to encourage more students to choose financial planning as a profession.
Last November, TD Ameritrade Institutional agreed to be the lead, founding sponsor of the CFP Board’s new Center for Financial Planning and made a multimillion dollar contribution.
Nally says the center has the capacity to rally a broad array of organizations to foster next-generation talent, elevate the academic standing of financial planning, and address the lack of diversity.
“It’s been an amazing run so far, but now we as an industry have the responsibility to strengthen and defend the profession for future generations,” Nally asserts. “That responsibility includes maintaining investor confidence, building trust, and expanding the pipeline for talented new advisers.”
TD Ameritrade Institutional is a provider of brokerage and custody services to more than 5,000 fee-based, independent registered investment advisers and their clients.