Mapping a momentous shift in adviser geography

Buried in a conference call on the historic deal between Charles Schwab and TD Ameritrade last week was a seemingly innocuous question. Will Schwab also relocate TD’s operations to its new headquarters in Westlake, Texas?

While executives were characteristically tight-lipped, the potential uprooting of the companies’ traditional headquarters in San Francisco and Omaha, Nebraska, respectively, opened up a larger query for the industry. With technology allowing advisers to serve clients from almost anywhere in the country, what’s stopping them from picking up and relocating their whole operation to greener pastures?

As you will have guessed, taxes and the cost of living play a large role in the answer. Schwab, which has been synonymous with Northern California for the better part of five decades, is gradually migrating its business to tax-haven Texas — and it’s not alone. Dynasty Financial last year relocated from New York City to St. Petersburg, Florida, where there are no state income taxes. There are also dozens of examples of independent advisers hightailing it out of high-tax states.

Clients, too, may be looking for a change of scenery. A well-publicized tax hike on rich New Jersey residents is likely to start conversations between clients and their financial advisers about whether it’s time to head for the closest exit. Prime candidates are next-door neighbor Pennsylvania, Florida or even New York, since taxes suddenly look much more appealing just across the river.

A de-emphasis on geography, in part accelerated by the rapid spread of COVID-19, has repercussions across the industry and will certainly open new opportunities for advisers willing to relocate. For one, advisers’ quality of life could improve if they choose to exit crowded cities on the coasts. Whole new markets may also emerge for advisers willing to make an exodus from the traditional advice markets in metropolitan areas and venture into underserved communities around the country.

But there’s a catch. While advisers are now able to reach clients anywhere and almost everywhere, so too, can their competitors. Firms that used to vie for business from across town can now compete from across the country. That means advisers will have to step up their game, especially when it comes to offering client experiences through technology — most notably videoconferencing. The advisers most comfortable going from in person to on camera will likely find the most success as digital experiences quickly become the norm.

Ultimately, the shift toward the decentralization of advice may open financial planning to clients who traditionally have had less access to financial planners. Without costly overhead and tax levies on brick-and-mortar locations, advisers may be willing to lower what they charge and open advice to the mass affluent clients who, until now, haven’t had the assets needed to be profitable to traditional advisers. The new competition also will encourage advisers to work more diligently to attract and retain clients and help them tackle their financial goals.

New locales will certainly benefit advisers looking for a change of pace, but it could also unlock new opportunities — which can only be a good thing for Main Street investors.