Duran Duran

The big squeeze: End of the golden era

Four formidable forces are developing to take assets from the standalone local advisory firm and they are quietly building momentum

Sep 12, 2014 @ 12:20 pm

By Joe Duran

For most of our professional lives, independent advisers have been able to build their businesses by competing against scattered local competition from brokers working at one of the big brokerage firms and the other independent advisers in their neighborhood. In essence, the competition is really a collection of relatively small folks all offering somewhat similar services for similar pricing.

When all the animals in the jungle are a similar size, and there's lots of food, everyone does OK. We have seen threats before: Remember when accounting firms, law firms and banks were all going to take away our business in the '90s? But those threats petered out and we have continued to thrive. And while technology and products have certainly evolved over the past few decades, it's been business as usual for most of us.


I very strongly believe that five years from now we will look back at the past 25 years (1990-2015) as the golden times for the independent adviser. With no nationally dominant firms and a flood of retirees needing help, life has been quite good for any modestly competent adviser over that time.

But the world is changing very rapidly — there is a squeeze happening that is almost imperceptible, if you don't look. We've been like a herd of antelope happily enjoying a wonderful pasture with no huge threats and plenty to eat, but there are lions and elephants coming into our Eden, and they are going to eat all of our food and try to devour us, too. Before you know it, the easy pickings will be gone and we will be fighting for size and market share.

There are four formidable forces developing to take the assets from the standalone local advisory firm and they are quietly building momentum:

1. The Mega D2C: These are the monster firms that already have a direct-to-consumer (D2C) business, including the large mutual fund firms and the national custodians. They are reconfiguring their business models, already offering financial planning to clients at increasingly larger client sizes and super-low pricing. Many of them now view the client base of up to $2 million as the prime area they want to own. Take a look at what the larger custodians are offering their clients today. They have strong client brands, a huge size and pricing advantage. They keep improving their wealth management tools and have endless resources and a unified culture.

2. The Super-Advisers: There are only a handful of $10 billion independent national wealth management firms today, but they are the fastest growers in the industry. In the next few years, there will be more than a dozen $10 billion wealth management firms and as many as five with assets under management of $25 billion. They will be national in reach and offer full- service, consistent wealth counseling and competitive investment services. They will do what you do, but in a scaled and technology-powered way, nationally.

3. The Robo-Advisers: This group has been discussed ad nauseum (including in a huge article in Forbes last month), but the national, technology-driven advisory firms are gunning for younger clients. They have the money to market nationally and build their brand. They are charging a fraction of what any conventional adviser charges and providing better tools than many independent firms — take a look at Wealthfront's website, FlexScore's dynamic financial planning or LearnVest's new financial plans.

4. The Big Bank and Brokers: From Bank of America's Merrill Lynch to Wells Fargo & Co., there is an arms war going on to develop really interesting and engaging wealth management tools (take a look at Merrill's recent launch of Clear or Wells Fargo's Envision system). They used to charge double what independents did and worked primarily with proprietary products; that's no longer true for most of their advisers. The threat is from the firms that finally get their advisers to do things in a similar way.

Where is the standalone local adviser in all of this? They will be caught in the middle of the battle. Struggling to gain new clients, forced to invest a fortune to upgrade their technology and services, to retain and recruit staff and to get their brand noticed among prospective clients, they will struggle to stay profitable in a price-compressed world.

I will be taking a deeper look into three of the rising competitors (we already discussed robo-advisers a couple of months back) in future articles and how the independent adviser should compete against them as we leave the time of abundance and enter one of scarcity. If nothing else, I hope some of the insights will help advisers to flourish in this time of change.

Joe Duran is chief executive of United Capital and the bestselling author of “The Money Code: Improve Your Entire Financial Life Right Now.” Follow him on Twitter @DuranMoney.


What do you think about the last 25 years of financial advice?

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