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Summary
Here are six developments in the investment management world that will dramatically change the Advisor business model.
Fees and Fiduciary, along with new investment platforms and investor sentiment, will facilitate change in the industry.
Some of the developments are dramatic, catching a lot of attention and requiring Advisors to pay serious attention.
There is a confluence of events happening in the Advisory world that are intentionally disruptive to the traditional Investment advisory business model. Independently and together, they portend a change in the business model going forward. The days of the traditional financial representative hanging an investment advisory shingle out, giving a client a 10-question questionnaire, putting the client in a couple of mutual funds and sitting back and collecting 1% are going, going… gone. I give it two years. I also say “good riddance.”
So, what’s happening? Let’s start with the heavy lifting.
1) Scott MacKillop. Years ago I interviewed him for my radio show, “Legends.” The 40-year veteran of the investment management wars is still cementing his Legend status. His new investment management firm, Denver-based First Ascent Asset Management, has made some game-changing business decisions. Start with outsourcing all the back office functions: reporting, billing, account opening, on-boarding. Add in low-cost service with low-cost portfolios. Those portfolios: 10 models that can be blended in sleeves. They are rebalanced annually.
But, the BIG attraction: For all asset management services they charge $500 flat, regardless of the size of the assets managed. The rationale? Simple. Scott says, “Why should those larger accounts pay more than the smaller ones, when the costs are approximately the same? I’ve always believed that most clients-and most advisors-are paying too much for portfolio management services.” Try this one more time, $500 flat.
Designed as a service to be used by Advisors who are independent from the firm (First Ascent has no Advisors), it is beyond efficient on both sides. “Advisors can go on our website day or night, run proposals and open accounts paperless-without having to interact with us,” says MacKillop. The client even signs online. “It’s a totally automated client on-boarding and proposal generation process.” The benefit to Advisors? Why pay for a back office operation? Can you envision an Advisor-Client meeting at 10:00 pm ending with signed agreements?
Sound like a Robo? No, Scott admits it has some of the automatic, paperless benefits of a Robo, but real First Ascent humans – the investment committee – still make the investment decisions, and there is an independent Advisor serving the client.