Joe Duran

Duran Duranblog

Joe Duran

4 steps to take to make sure you win with clients in 2016

In the midst of one of the most disruptive periods in the history of the industry, embracing change is key

Dec 21, 2015 @ 3:06 pm

By Joe Duran

As another unusually active year comes to a rapid end, let's look forward to 2016 and imagine what the industry should anticipate in the year ahead.

In 2015, the stock market fluctuated along to a flat year. Indexing ruled, with a small group of stocks holding up the entire market. Yield continued to be scarce for investors. Transactions for large RIAs were rampant with two of the largest wealth managers in the country changing hands. The robo-world clearly gained traction, with Vanguard and Schwab entering the fray and capturing many billions in assets (far more than the independent robo-firms.) This has laid the groundwork for some interesting crosswinds in the year ahead:

• Unhappier clients. Stagnant markets make for restless clients. This invariably leads folks to think about alternatives; a change in strategy (changing their adviser) or a change in pricing often leads their choices. We may likely continue to see extremely low interest rates and a listless stock market in 2016. Clients appreciate their advisers most when their investments are making money or when advisers walk them through a crisis. This year more will question whether they are getting their money's worth, even for good advisers with great relationships.

• Accelerated flows to indexing and increased pricing pressure. We have seen a secular flow to indexing, but after a year like 2015, where it was close to impossible to outperform a passive benchmark, investors may continue the move to indexing for both cost and performance reasons. The Department of Labor ruling is about to force fiduciary standards on all ERISA plans and participants, and it expressly promotes low-cost indexing. This will increase visibility on one of the clients' highest investment costs: What they pay their adviser. Don't be surprised if more of your clients bring up their fees; and if they aren't saying it, that doesn't mean they're not thinking about it.

• Clients will increasingly “test” the self-directed solutions. Channel conflicts keep increasing and evolving. Clients may accelerate their use of different investment providers. The direct custodial solutions, the robos and the hybrid bionic solutions from fund companies like Vanguard may persuade individuals to “try them out” with some of their money. Since most advisers give away the planning and get paid for assets they manage for clients, it's easy to see how some might shift a portion of their assets to a cheaper self-directed index solution. Thereby receiving all of the adviser's guidance, while reducing what they pay their adviser. Imagine if all your clients did that with 25% of their assets? What would happen to your revenues? How about if a client chooses to shift 75% to a self-directed solution, but keeps you to provide planning and manage the remainder? At what point would you feel your clients were not paying adequately for your guidance? This dynamic will become more common in the year ahead.

• Acquisitions pick up steam. It's been a highly active M&A market. Add all the new market entrants looking to buy firms, an aging adviser base, a listless market and a rapidly changing digitized industry, and you have the makings for an explosive year of acquisitions. The activity will not just be for acquiring RIAs, but for technology solutions and platforms too. I also expect there will be many more mergers of equals as the smaller advisers cope with stagnant growth by attempting acquisitions.

• Digitization adoption surges. Having your own version of a digitized client experience will not be a choice for any successful growing adviser, but the world is still very complex and undefined with no clear winners. Many firms are racing to create engaging client solutions, but no one really knows what the winning combinations will be. The custodians or any one of the platform firms are spending furiously to create the solutions to help advisers. In the meantime, our world continues to be complicated and rapidly evolving, with client expectations always pushing for more personalization and a connected experience with ever lower costs.

(More insight: The dinosaur in the room: How to cope with change)

How to win in 2016

In times like these, clients need to be reminded about why they pay us. They need a clear road map of not just what you have done, but explicitly describing what you do in good and bad times. Nonetheless, in order to win with clients, here is where you want to be by the end of 2016:

1. Oversee the client's entire financial life. Provide consolidated views of the client's entire balance sheet and immerse yourself in all of their financial choices.

2. Charge for the client's value. If clients pay you only for investments, then they will consider alternatives. If you don't charge for the financial guidance then they can simply take your advice but only pay you for what you manage, even if it's only half their money. In order to thrive you must charge and deliver guidance on a client's entire financial life choices.

3. Remind clients how you earn fees. It's easy to assume only your clients are happy unless they say something; however, every client thinks about costs in stagnant markets. You must routinely remind them why you charge what you do and why you are worth it.

4. A technology enabled client experience. Every adviser will need to have a computer-heavy, people-light view of their practice. Pricing is coming down and that demands reliance on technology instead of people in order to maintain your margins, and your lifestyle.

We are in the midst of one of the most disruptive periods in the history of our industry and this year will be one of accelerated and constant flux. Embracing change is the key to thriving in this brave new world. Make it a happy 2016!

Joe Duran is chief executive of United Capital. Follow him @DuranMoney.

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