Financial advisers at risk if they don't consistently innovate

Advisers need to keep up with changes or risk being commoditized

Apr 17, 2019 @ 5:45 pm

By Greg Iacurci

Financial advisers are innovating their practices too slowly and that could have negative implications for their growth prospects, especially in the face of major disruptions like Charles Schwab Corp.'s new subscription pricing, according to industry experts.

"We're without question living in one of the most innovative times in our world," said Joe Duran, founder and CEO of United Capital, at InvestmentNews' Innovation Summit in New York on Wednesday.

Wealth managers, he said, only make one major change every two to three years to their businesses, such as new pricing or a customer relationship management system, while the "whole world around them is changing at warp speed."

Companies such as Square, WeWork, Uber and Pinterest embody this rate of change said Mr. Duran. "Change is a requirement for growth," he said. "Otherwise, you'll plateau. It's inconceivable that you don't."

And innovation can come from simple places — the way a firm pays its bills or interacts with clients, he said. Further, outsourcing certain firm functions can help advisers focus on doing one or a few things exceptionally well, Mr. Duran added; however, many advisers don't think this way, which stifles innovation, he said.

Advisers are increasingly having to look beyond investment management, which has become commoditized, and expand their service offerings in order to differentiate, experts said.

Valerie Brown, executive chairwoman of Advisor Group, said successful advisers have moved to being "life coaches," who become quasi-family counselors that help clients determine their dreams.

"I think the industry is going through a massive change" around the words used to describe what they do, Ms. Brown said.

Mark Tibergien, CEO of Pershing Advisor Solutions, highlighted that point, saying advisers were "investment-forward" with clients 20 years ago, but are now "planning forward" and becoming increasingly "experience forward."

Ken Fisher, founder and executive chairman of Fisher Investments, disagreed on the need to innovate beyond investment management.

"I don't do sociology," he said. "It's not our responsibility to do social work. It's our responsibility to change the investment universe one client at a time, and do it in volume."

Advisers often innovate more quickly when they have a sense of urgency, experts said, which came last month when Charles Schwab Corp. announced it would switch to subscription pricing for its robo-adviser.

David Lau, founder and CEO of DPL Financial Partners, said the $30-per-month fee sets a price in the mind of consumers.

"Now an educated consumer will be aware of a price point for a service," much in the same way that Schwab and E-Trade Financial Corp. in the 1990s set a standard price point for trading, Mr. Lau said. The fear is that a service can get commoditized when consumers become broadly aware of such price points, he added.

"I definitely think we should all worry about it," Ms. Brown said.

Ultimately, innovation breeds growth, which can in turn have a positive cyclical effect, Mr. Fisher suggested.

"Once you have a fat gross operating profit margin … you can spend on all forms of things that will lead you to growth, including experiments," he said. "You can fail on lots of stuff," but ramp up the successful ones, which leads to more firm growth, he added.


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