In this issue we highlight ten individuals we think bear watching over the next year, both because of the specific things they are doing, but more broadly because of the changes taking place in the industry that they represent.
By its nature, then, the list is heavy on innovators. And that’s good. Innovation almost always makes things better (with the possible exception of financial engineering on Wall Street, but that’s another story.) But making a business case (i.e. a return on investment) for innovation can be hard.
For financial advisors, at least, there is some tangible indication innovation brings in more revenue. That’s the conclusion of a recent paper published in the International Entrepreneurship and Management Journal titled “Determinants of Performance of Independent Financial Advisors.”
The paper, from researchers at the University of Valencia, looked at independent financial advisory firms (IFAs) in Spain. Hit hard by the global recession, the Spanish advisory model that most resembles our RIA channel—a fiduciary unchained to a commercial brokerage firm and providing holistic financial advice to individual clients for a fee—only really began in 2009 with the passing of the Exchange Markets Act, which, among other things, sought to legitimize and restore confidence in that country’s financial services industry.
Even by European standards, the model is a new one, and small. At the time of the report, there were only some 100 IFAs registered with Spanish regulators; the majority of Spanish investors are still advised by commercial banks. Still, the researchers found the IFAs that grew fastest—defined as revenue increases of 10 percent or more annually—from 2010 to 2012 held two things in common: They were open to adopting innovation into their practices (the paper makes an example of better CRM technology) and they joined information networks to both learn and share knowledge of best business ideas.
This may seem obvious, but when former Merrill Lynch advisor David Benskin, in our current roster of Ten to Watch, tells the story of aggregating complex accounts of HNW families by hand using Excel spreadsheets and screenshots of email chains, you see innovation isn’t always a firm’s top priority. As the researchers conclude, “to be able to take advantage of new opportunities constantly arising in the financial advice market, IFAs should not spare resources for innovation activities.”
That’s good for many of the people on our list, and for the advisors who are open to their ideas.