Adapt or die: 5 ways advisers must embrace change

Keep up with technology and customer preferences – or you're doomed

Dec 10, 2013 @ 12:18 pm

By Robert Sofia

advisory business, advice, financial planning
+ Zoom

Do you remember Friday nights at the video store — the smell of popcorn, crowded aisles and long lines? In most places, those days are long gone. Founded in the 1980s when videocassette recorders were a fixture in U.S. homes, Blockbuster's business model failed to evolve with the times. At its peak in 2004, Blockbuster had 60,000 employees and 9,000 stores worldwide. Today, Blockbuster is bankrupt and plans to close the last of its stores by January. The reasons for Blockbuster's failure are complex, but underlying them was a basic refusal to embrace critical changes in technology and consumer preferences.

As a consultant to more than 1,000 U.S. financial advisers, I'm extremely interested in the forces shaping our industry. Some of the trends deserve serious attention, and I'm afraid that many advisers haven't even noticed them. In this article, I will enumerate five forces shaping the financial advice business, and explain how I believe advisers must adapt to survive.


A wave of consolidation is already causing major changes in the industry as larger firms sweep up smaller ones. Two major factors at the heart of this phenomenon are declining revenues and shrinking profit margins. Market volatility and historically low interest rates are contributing to revenue declines and causing advisers to scramble for other sources of income. Falling revenues and higher operational costs due to increasing regulation are squeezing profit margins and forcing smaller firms out.

Two strategies will help firms prepare:

1. Develop a clear growth strategy for your firm that identifies any additional profitable niches and lays out a plan for targeting clients.

2. Create scalable systems for each area of your firm, including human resources, prospecting, new client acquisition and service standards. When your business model is scalable and replicable, you can more easily integrate new books of business.

If growth through acquisition isn't in the cards, you need to start developing a comprehensive exit plan long before you plan to retire or sell your book. For many advisers, selling their books is part of their overall retirement funding plan; understanding the key drivers of your profitability (and future business) will help you systematically improve your firm's value and maximize the sale price.


Most firms are basing their revenue models on serving the baby boom generation. Now that boomers are moving into the withdrawal phase, advisers will slowly lose a major source of revenue. In my experience, most wealth management firms are radically unprepared for this big generational shift. If your firm isn't prepared to appeal to Generation X and Y investors, you risk missing out on the biggest generational transfer of wealth in history.

Though many of your current high-net-worth clients have adult or nearly adult children, it's very likely that you haven't spoken to the younger generation about their finances. This should be sobering to you because 86% of these younger investors don't plan to use their parents' advisers.

As a Gen Y financial adviser, I'm qualified to speak on this subject, and here's what I think: Advisers need to offer services in the way that younger clients want to receive services, not necessarily in the way that's most comfortable to the adviser. In order to stay competitive, advisers must learn new ways of communicating with and serving the next two generations.

I discussed some more in-depth strategies for appealing to Gen X and Gen Y clients here.


Technology will continue to drive structural changes in financial services, shifting the way that consumers handle their financial planning needs. As planning and investing tools become more sophisticated, more investors — especially tech-savvy ones — will replace traditional advisers with low-cost online platforms. Even scarier is the fact that these digital platforms are beginning to attract high-net-worth clients who are the bread and butter of advisers across the country.

To adapt, advisers should focus on two things: value-added services that online competitors can't offer and providing these technology tools themselves. One great example of this strategy is the Edelman Online platform that Edelman Financial Group offers to middle-market investors. This low-cost online portal offers automated investment management services with the hope that accounts eventually can be transferred to the full service model once clients earn more money or receive inheritances.

Advisers also need to focus more on differentiating themselves and building strong relationships with HNW clients by offering premium services and helping clients tackle niche problems.


The industry is becoming more highly regulated, and regulators are much more involved in how firms are run. Regulators are under public pressure to be hard on the industry, and there is a sense that the Financial Industry Regulatory Authority Inc. and the Securities and Exchange Commission are targeting smaller firms because they are less able to defend themselves.

We know that an industrywide fiduciary standard is coming, and smart advisers are getting ahead of the curve by preparing to operate as fiduciaries now. Frankly, this shift will bring massive changes to the way we do business. While many professionals would claim today that they have a fiduciary mindset or thought process, I would submit that they are living in a state of denial. Sure, they are trying to do the best for the client, but that's not what a fiduciary is. A fiduciary puts the client first, no matter what, and does not have any product or strategic agenda other than to help fulfill the client's needs and goals — even if it means sending that client to see a different adviser.


Compensation is changing as the industry struggles to adapt to regulatory shifts and meet client needs. Advisers and small broker-dealers are being squeezed by volatile markets and are racing each other to the bottom, cutting commissions, which have decreased on an annual basis: In 2009, broker-dealers received an average of 2.9 cents per trade, but as of 2012, rates have fluctuated from as low as 2 cents to a fraction of a penny per trade. While larger broker-dealers are able to stay competitive through volume, smaller firms are struggling to stay afloat.

Solutions? Bring on more clients, increase the profitability of existing clients and seek out additional sources of revenue. Research suggests that compensation is migrating toward fee-only and fee-based models, making dual registration an attractive option for firms seeking new streams of revenue. Technological advances will help automate aspects of asset management and portfolio construction, pushing costs of service down and potentially allowing advisers to make a profit serving middle-market clients.

In conclusion, it's important for advisers to look ahead at what the industry will look like in the upcoming decades and begin preparing themselves for success now. While I understand that it's hard to create strategies for a reality that hasn't completely appeared yet, take stock of the evidence around us and decide: Is your practice ready for the industry of tomorrow?

Robert Sofia is the chief operating officer and co-founder of Platinum Advisor Strategies, a web-based marketing and consulting firm to financial advisers nationwide. E-mail him at

What do you think? What are you doing to prepare your firm for success over the next 10 to 20 years? What forces do you see affecting the industry in the next few years? Join the discussion below.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Get creative: How to boost your message to prospects

Communicating with prospects can be difficult. What are some creative ways that you can enhance your messaging? Bob Huntley of Wise Counsel Wealth Management offers some ideas.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print