As the coronavirus and the market volatility that have come with it become the new normal, it’s easy to think the breakaway trend of advisors that has characterized the past several years will slow down.
Not so. One lesson that has been borne out in past economic downturns is that advisor movement continues, and it may even pick up the pace. Why? It’s because dire times such as these often expose the gaps in the services and support that platform providers like broker/dealers and registered investment advisors provide. Those that falter when tested run the highest risk of losing advisors to other firms.
To be sure, advisors face a similar challenge. The uncertainty and upheaval brought by the pandemic is something of a stress test for their business model. In other words, do they have the pieces in place such that their business is better positioned to grow and gain new clients and assets?
I’ve spoken to several practices in recent weeks as they navigate the current moment, and here are some of the characteristics of the advisors best positioned to weather the challenge and come out ahead.
Switched to Fee-based Models
As if there needed to be more evidence for the advantages of fee-based models, the advisors in the best current position have shifted to predominantly fee-based business and spent significant time in recent years educating their clients on the importance of long-term financial planning.
These advisors’ clients understand and have internalized the concept that strategic planning toward long-term goals matters more than short-term tactics in response to hour-to-hour or day-to-day market swings.
As such, during these stomach-churning times, these advisors can provide clients something that has been in short supply recently: steadiness, stability and a sense that this too shall pass. This translates to more satisfied, more loyal clients and greater value for the practice in the recruiting market.
Wise Platform Selection
In “normal” times, so much of advisors’ ability to face problems hinges on the strengths and weaknesses of their RIAs and broker/dealers and how well those platform providers adjust to changing conditions.
These days, the need for firms to maintain support for advisors, communicate effectively and respond to new challenges has been absolutely crucial, and it will only become more important. It’s not a coincidence that the advisors affiliated with the most capable, prepared firms are experiencing fewer headaches now.
The takeaway for advisors: A more holistic approach to transition that brings in a broad range of factors—not just financial incentives—can pay off. To be clear, I’m not arguing that during their last move advisors should have asked, “How will you support me during a global pandemic?” Rather I’m suggesting that the best-positioned advisors today took their due diligence seriously then, taking into account how prospective firms could support them on their worst days, not just their best.
Business Continuity Plans in Place
In addition to having set up their business models and selected strong platforms, the best-positioned advisors had business continuity plans in place that explained in detail how the business should operate in the event of a severe disruption. These plans are typically drawn up in anticipation of natural disasters, such as hurricanes, tornadoes and earthquakes, but they have been just as valuable in the current situation.
The best business continuity plans cover big-picture strategic questions, such as who will make decisions if the primary financial advisor is unable, to key operational issues like how employees can work remotely or where key documents are housed, to mundane-but-critical matters such as how to make payroll and pay the rent when ordinary channels are blocked.
The practices that didn’t have to improvise a plan from scratch are now seeing the benefits of their preparation.
Invested in New Communications and Service Technologies
The best-positioned advisors have invested in new ways to communicate with and service clients, and those that have not are finding that the frictions in doing even basic tasks can grind operations to a halt. Granted, virtually no advisors working today still rely solely on phone calls, FedEx and in-person meetings. Yet, it’s safe to say that there are varying degrees to which advisors have adopted new technologies.
For example, have they adopted teleconferencing to hold client meetings? Can they help clients start new accounts online without having to mail documents and checks back and forth? Have they built into their own businesses’ operations the capability for employees to work remotely without a hiccup? The advisors who answer yes to these questions are better off.
Doing the Basics Pays Off
In this time of the coronavirus, one key piece of protective advice that everyone should follow is to wash our hands, thoroughly and frequently. In a sense, this should be nothing new to us—we should have been doing this long before COVID-19 emerged.
There’s a key analogy to be drawn here for advisors: Those that took steps before the current crisis to modernize their business and operating models and pick the right partners are seeing the benefits right now and will reap greater rewards in the future.
Financial advisors always advise their clients to prepare for what’s ahead; they should take their own advice and look out for the future of their businesses. It’s not too late. Whether it’s shifting toward fee-based models, making operational changes or switching to another platform provider, advisors should seize the opportunity now to lay the groundwork for the future and prepare for the next big disruption.
Jeff Nash is founder and CEO of BridgeMark Strategies, a strategic consultancy and advisor transitions firm for the independent wealth management space. He is also a partner and co-founder of Ignition Point Partners, a consultancy that works with financial firm executives to improve their recruiting and acquisition efforts.
