The post Threats That Are Actually Growing Wealth Management first appeared on Blueleaf.
]]>NOTE: The opinions expressed in this post belong to the author and are for general informational purposes only. These opinions do not necessarily reflect those of Blueleaf Wealth, Inc. the publisher, or its executives. The opinions are not intended to provide specific recommendations or advice for any individual or on any specific investment product. The sole purpose of this opinion piece is to provide education about the wealth management industry.
Disintermediation is not a new concept in banking and wealth management. DIY investing grew substantially in the 1970s and 1980s. The introduction of discount brokerage (Charles Schwab in 1975) helped propel its growth. As did the decline of pensions and the rise of 401ks and self-directed retirement. Despite fears, the wealth management industry grew.
Disintermediation along with other “threats” continue to unnerve the wealth management industry. We explore three big changes that, while discussed as threats, are more likely growth opportunities.
The introduction of mobile banking in 1999 distanced consumers from the bank lobby. That accelerated between 2007 and 2010 when iPhone and Android made their respective debuts. The mobile apps that have followed since have driven ever more direct access to investing and banking.
Stop and think about that for a moment. When this firm Blueleaf was founded shortly after the 2008 financial crisis, mobile app technology was in its infancy and the web itself was just coming into its own. Fifteen years later, thousands of advisors and their firms rely on this firm’s client mobile app to deliver one of their core client experiences.
Mobile apps were also instrumental in the rise of robo-advisors in the last decade. Betterment wouldn’t have 615,000 users if they weren’t available on mobile. Wealthfront, their nearest competitor, has 440,000 users. Many of them are folks who wanted to invest but who otherwise may not have.
That last sentence is really the point. Mobile is growing the investing and banking pie. As a result, it’s growing the pool of potential clients for wealth management. The apps are capturing users that might not otherwise engage with advisors at all.
On October 7, 2020, the International Banker (IB) published an article titled, “Is Disintermediation the Future of Finance?” The unnamed author, makes some interesting points about distributed ledger technologies, cryptocurrency, and peer-to-peer lending. It’s well written, but it’s basically promoting Bitcoin and DeFi.
Bitcoin and cryptocurrency are interesting but the important technology is what it’s built on. Blockchain, the technology behind it, is where the change in wealth management is happening. You can learn more about it on the Augmented Advisor podcast. Blockchain is a Distributed ledger technology (DLT). DLTs and non-fungible tokens (NFTs) are creating new options to manage custody with far less need for third-party processing. This could disintermediate traditional custodians and lower costs.
DLTs eliminate the need for third parties to manage transactions and keep records because the DLT itself is actually a public record. They also provide an auditable common ledger to satisfy compliance officers. When fully implemented in wealth management, distributed ledgers could offer ultra-low cost, fully transparent trading, custody, and other business transactions. Blockchain makes that possible.
Recently, an artist called “Beeple” created a piece of digital art as a non-fungible token and sold it last March for $69 million. That was possible because of Blockchain and its ability to create one-of-a-kind digital assets. The technology will give advisors the ability to hold stored value assets in an easily transferable form. Moving those assets via DLTs means no transaction fees. Imagine the possibilities.
In March 2015, I started to hear about a new player in retail trading. A previously obscure trading platform, Robinhood, launched its mobile app. Using a business model that relied on Payment for Order Flow (PFOF), they did more than just offer direct investing. They offered no-fee trading.
I’m guessing I don’t need to get into the impact Robinhood’s approach had on wealth management. We all saw TD Ameritrade and Schwab go to no-fee trading and eventually merge together. Again, this “threat” appears now to be expanding the market. Attracting people who wouldn’t have been investing otherwise. By expanding savings and investing access these platforms are growing wealth management’s future client base.
Wealth managers considered Robo advisors a threat for years and are now using them as a tool to offer holistic services. You can now brand Mobile apps with your company name and logo and deliver a state-of-the-art client experience. That means you are the primary differentiator.
Remember this term: Tech-Enabled. It must describe your firm. With you at the helm as the differentiator-in-chief, the technology we’ve described here can:
Automation is already available to you. Blueleaf can help you sort it all out.
The post Threats That Are Actually Growing Wealth Management first appeared on Blueleaf.
]]>The post The Great Reset: How the Pandemic Changed the Wealth Management Landscape first appeared on Blueleaf.
]]>A brief trip back in time would reveal that just two short years ago there were still naysayers claiming that virtual advisory services were a “flash in the pan” and wouldn’t work long-term. Some even suggested that doing business virtually was a security and compliance risk.
The pandemic changed all of that. Wealth managers could no longer resist the move into a remote business model. Those who did found themselves struggling to maintain their client base. The rest of the world was meeting on Zoom. We had to do the same.
Even today, with the world’s citizens finally emerging from their Covid-safe homes, many still prefer a virtual meeting to going into their advisor’s office. This is not a temporary situation. Video conferencing will need to be an option for firms that want to thrive.
Another interesting side effect of the virtual advisory movement is that it has eliminated geographical boundaries. Advisory firms that embrace an online business model can do business anywhere, expanding their reach and increasing competition in the space.
Blueleaf has been a remote-first company since we were founded, so most of the team works from home at least some of the time. The pandemic was tough on us in a number of ways, but we didn’t have to learn a new way to work.
Wealth management firms were forced to switch to a remote business model when state and federal authorities issued stay-at-home orders to slow the spread of Covid-19. The efficiencies and cost-effectiveness of this model were revealed early on, but some still fought it.
As the world opens up again, those who want things to “go back to normal” are finding that others enjoy their remote work schedule, particularly now that the kids are going back to school. Like the virtual advisory model, remote-first is here to stay.
The term hybrid has typically described an advisory firm that was dually registered as an RIA and with a broker dealer. The new hybrids do business in person and online. Welcome to the new normal.
This new approach has been embraced by progressive advisors who see the advantages of offering virtual advisory services but also recognize that some clients prefer more traditional meetings in person. We can do both. Those who do will thrive and grow.
Of course, operating virtually requires more than just a laptop, a Zoom account, and a webcam. Those are a start, but a true hybrid advisory firm needs to invest in the right client experience which includes reporting technology, automated online communication, and a good mobile app.
The silver lining in 2020 is that new technology is now accepted in the world of financial services. That was not always the case. Our historically conservative industry learned and evolved. That will help us move forward.
During Covid-19, regulators who are slow to change in the best of times adapted to our collective circumstance and became more flexible, offering online meetings and other accommodations.
Custodians and wholesalers also found they needed to adapt. Their business model was dependent on live conferences and face-to-face sales pitches. That was no longer possible in 2020. All conferences went virtual.
These businesses adopted the same approach as their financial advisor customers. Meeting virtually, they found a new way to do business. Many of them may choose to continue that way. It’s more cost effective and less stressful.
Great forces often cause great change. That’s what has happened in wealth management. With our new willingness to embrace change, our industry is evolving toward living up to our potential. And that is a great reset.
The post The Great Reset: How the Pandemic Changed the Wealth Management Landscape first appeared on Blueleaf.
]]>The post Managing Client Expectations in the Digital Era first appeared on Blueleaf.
]]>This is what financial advisors are up against. Client expectations are high because they know there are other options available. The only way to retain their business is to consistently demonstrate your value. In today’s article, we’ll go over some of the ways to do that.
This is a common theme in our content here at Blueleaf. Transparency and frequent communication with clients are essential for success in the digital age. Advisors are frequently questioned about their decisions. It’s important that clients know why you make them.
A good example of this is the selection of model portfolios. Analyzing risk and suggesting a moderate or aggressive approach is a good first step, but it doesn’t paint a clear picture of how it lines up with what the client wants.
Do they want to take an ESG approach? Are they still all-in on fossil fuels? Should you include FAANG stocks in their portfolio? Work to understand clients’ specific desires and then connect your own strategies to them. You may even want to incorporate some of the themes you hear from clients into your model portfolios.
The next step is to accurately report on those investment models using allocation descriptions that speak to your clients in the same language you do. If you’re not using the terms “growth” and “value” in your verbal conversations, don’t include them on performance reports.
When clients understand your investment strategy, their expectations in that area will be met. Taking the time to explain the who, what, and why of your decisions helps them to build confidence in your abilities. Ask questions and use simple reporting to provide updates.
Speak to your clients in a language they understand, and make each conversation interactive, not one-way. Practice active listening. Their opinions are valuable. If you disagree with them, explain why, but remember that it’s their money being invested, not yours.
One of the biggest expectations that clients have centers around trust in their advisor. If they can’t understand what you’re talking about, how can they trust you?
Probing for feedback in client meetings will tell you if you’re connecting or not. Add that to your toolbox.
This concept flows through to your performance reporting. Remember those fifty-page quarterly reports that break down Alpha, Beta, and Delta? Most of your clients have no clue what that means. They read the cover page and throw the rest in a drawer.
Simplify and automate your reporting. Use terminology that clients understand and give them the answers they’re looking for, without all the extras that demonstrate your extensive financial knowledge. Clients don’t care about that. They just want to know if they made or lost money.
This is an often-overlooked exercise that leads to communication breakdowns. Advisors need to teach their clients how to express their expectations. It’s best to set the groundwork for this in the very first client meeting. In other words, ask them exactly what they want.
An initial client meeting should never be a sales pitch. There are reasons why this client sought you out. For the purposes of building a healthy relationship, you need to know what those reasons are. How do you find that out? You have a conversation with them.
As time goes by, expectations and life goals change. If the advisor and the client have become comfortable communicating their wishes, this is not a problem. Those changes will come up in a meeting or on a phone call. If that doesn’t happen, the two parties will grow apart.
Advisors can share information and allow their clients to make certain decisions, but their role should be clearly defined. Yours is the knowledge that’s relied upon to drive the investment strategy. Make sure you’re viewed from that perspective.
Never let the client run the show. Include them in the conversation, make sure you understand their wishes and expectations, and accurately report results. Don’t let them dictate trades or second-guess your decisions. You’re getting paid to do that for them.
We live in a different world than we did just a few short years ago. Clients are savvier. Technology is better. Advisors need to be more proactive. Despite all that, the key to success is still the advisor/client relationship. Make sure yours is what it should be.
The post Managing Client Expectations in the Digital Era first appeared on Blueleaf.
]]>The post Robo Advisors are Going Hybrid. Should You? first appeared on Blueleaf.
]]>To avoid confusion, the term “hybrid” has historically been used to describe Registered Investment Advisors (RIAs) who are dually registered with a broker dealer to expand their service offerings. It’s a common model with advisors who want to offer commissionable products alongside fee-based services.
In 2021, dual registered advisors go beyond simple asset management plus commissionable products and offer a full range of services including financial planning, annuities, insurance, and even real estate management in some cases.
Hybrid advisory firms take it to the next level. They employ technology to manage portfolios and expand virtually. There are still humans making decisions and managing relationships, but the machines handle the heavy lifting. With the addition of automation, FAs can scale faster.
The rise of Betterment after the 2008 financial crisis put a serious scare into traditional financial advisors. In the blink of an eye, they had 400 new customers after presenting at TechCrunch Disrupt in 2010. In 2020, they added $10 billion in new assets under management.
However, Betterment is no longer a pure robo advisor. Their premium package, which is available for subscribers with $100K or more in assets, offers unlimited access to Certified Financial Planners. They started with automation and then added humans.
They are not alone. Personal Capital, SoFi, SigFig, and ElleVest all offer human financial advice to go along with their automated portfolios. Schwab is offering “Intelligent Portfolios” on their retail side for premium subscribers ($30 a month, $5000 minimum investment).
The common denominator for these examples is that growth was initially achieved through the robo advisor portion of their offering. Humans were almost an afterthought, but the need for real financial advisors was clear for most investors. They now are being forced to invest in human advice to grow.
Betterment experienced record-breaking growth during the pandemic, in part due to financial advisors’ reluctance to embrace virtual technology. Communication breakdowns led to lost clients. Robo advisors benefitted from that.
Remote technologies like video conferencing became part of life for clients stuck at home during Covid-19 lockdowns. For advisors who embraced it, clients liked this personal virtual experience. Advisors and clients both have realized that this hybrid approach gives them the personal attention they want and the convenience they need.
The situation opened the eyes of progressive FAs who saw an opportunity to grow by thoughtfully combining automation with personalized service across their business. They are now aggressively moving from accidentally remote to purposefully virtual — the hybrid firm.
If you’ve been in business for a while, there’s a good chance you’re well on your way to becoming a modern hybrid advisory firm. Running Zoom meetings with your clients is part of it. Aggressive automation is another.
To become a true hybrid, you first need to visualize each piece of your practice as a component that can be automated.
The trick is to automate while becoming more personalized. Implementing automation to manage portfolios is the most obvious. But it’s not necessarily the most impactful for scaling
The second component is client service. One of the features that makes robo advisors so attractive is that clients can find the answers to any of their questions on their own terms at a time that works for them. That’s huge. Office hours no longer serve as limits for service. Only automation can make that happen. Adding a help database to your website can expand your service at all hours without requiring staff to be on call.
That leads to the third component: automated communication. By automating reporting and communication you begin to expand when and how often you deliver value to clients. That not only saves time, but can dramatically increase the value your clients feel they’re getting as well as how top of mind you are. That helps improve referrals and grows your business.
Incorporating these three elements into your practice management strategy will make your firm more efficient and help you to grow. The technology is available to do this and robo advisors like Betterment have already demonstrated the advantages of going Hybrid. Now it’s our turn.
The post Robo Advisors are Going Hybrid. Should You? first appeared on Blueleaf.
]]>The post Virtual Wealth Management Can Improve Client Relationships first appeared on Blueleaf.
]]>Prior to 2020, financial advisory firms viewed virtual client service as a novelty. It was “cool,” but it wasn’t an essential service. That obviously changed during the pandemic. Wealth managers were forced to use virtual tools to maintain client relationships.
With the world opening back up, the question many advisors are asking is whether those virtual practices should remain in effect. This week, we’re looking at how virtual wealth management tools can help you improve existing client relationships and develop new ones.
The benefits of virtual client service should be clear after the year we all just experienced. People have become accustomed to meeting on Zoom. It’s simpler, saves on time and travel, and is no longer new. Some of your clients will want to continue with that system.
Other clients want to see their advisor in person. The world needs physical interaction right now, so get out there when you’re able. Restaurants are open and people want to socialize, so meals are a thing again. We might even see a live conference or two later this year.
You can have both. Many firms have developed a hybrid model where the initial consultation is done in person and follow-up meetings are on Zoom. Could that benefit your firm? We looked at it and came up with the following areas where we’ve seen positive results.
Utilizing these tools improves the client experience because they get the same benefits from it that you do. No one wants to sit in traffic and sit in a stuffy office to go over reports they don’t understand. Provide simple reporting online and use online meetings to build the relationship.
According to Oxford, the term “economy of scale” is defined as “a proportionate saving in costs gained by an increased level of production.” This is what operating virtually has done for wealth management. Fixed costs remain the same. Accelerated growth is more attainable.
Let me break it down for you. In a traditional system, the cost of maintaining each client is equal because all the servicing is done by human beings. A certain number of hours are required for each task that needs to be performed. Adding clients increases costs.
In a virtual system, where automation is used for communication and reporting is on-demand in a client portal, costs and are flatter and human time to service is less for each client giving you room to grow your client count without large cost increases or substantial additional demands on your time.
The expression “economy of scale” is generally used to describe manufacturing operations, where ramping up production and expanding distribution can bring costs down. Isn’t that exactly what you’re doing when you go virtual and add automation technology?
The post Virtual Wealth Management Can Improve Client Relationships first appeared on Blueleaf.
]]>The post Top Trends in Wealth Management in 2021 first appeared on Blueleaf.
]]>Some of what we have already experienced in wealth management this year is a continuation of the events and actions of 2020. Last year, we saw acquisitions by Schwab (TD Ameritrade) and Morgan Stanley (E-Trade). Expect more consolidation moves to come.
New administrators in Washington will also impact wealth management in 2021. The economic policies and executive orders of the last regime are gone. Taxes are going up. Green energy is taking center stage. Portfolio construction needs to evolve accordingly.
Social consciousness is on the rise — and people are focusing on Environmental, Social, and Corporate Governance (ESG). The environmental sector will benefit from a government-backed push for renewable energy. Fossil fuels aren’t dead yet, but the socio-economic climate that oil and gas companies are operating in is far from a friendly place.
Clients are savvy to all of this, so advisors need to ask more questions and get to know them on a deeply personal level. It’s time to start talking about morals and values, and then structure portfolios accordingly. Neglecting to do so could lose you clients.
Blue chips are still blue chips and financial performance cannot be ignored, but corporate governance is under a microscope. Expect to see C-suite and policy changes in some unexpected places this year. Evolution is the key to survival.
The Biden administration is proposing a 39.6% capital gains tax for those making over $1 million and a 28% corporate tax (formerly 21%). The increases, though higher than anticipated, are not a surprise. They do, however, require adjustments to investment strategies.
That will mean holding periods will matter less for high income clients with no difference between long and short-term rates. Also, tax location choices will matter more as tax deferred accounts will be even more valuable to high-income clients. Investments in Munis may increase or real estate due to their tax advantages. And finally on the margin maxing out contributions to 401ks, IRAs, HSAs and all the other pre-tax and tax deferral opportunities will make more sense than ever.
The Obama administration’s proposed DOL Fiduciary Rule in 2015 focused a spotlight on financial advisor compensation plans. In 2021, the proposed rules are expanded to include retirement plans in advisors’ fiduciary duties.
Meet the new boss, same as the old boss. Joe Biden is not Barack Obama, but advisors learned a painful lesson about fee transparency in 2015. Expect to see compensation models continue to evolve this year, with different incentives and an emphasis on holistic wealth and financial planning.
Make a note of the term because you’ll be hearing it a lot this year. The older generation may not be quite ready to embrace ESG investing, but the younger generation is. That means that wealth building needs to incorporate it for the sake of generational wealth transfers.
The kids don’t want to inherit a portfolio of companies that are doing harm to the environment or supporting socially disruptive activities. It’s important to them. After all, they’ll have to live in this world longer than their parents do. Wealth managers need to be conscious of that.
An important point to note here is that holistic wealth transfers are not the same as holistic wealth management. The descriptor means “all encompassing,” but we’re talking about two different scenarios. Planning for a wealth transfer is a generational strategy.
Implementing reporting and communications automation will enable advisory firms to scale faster and more effectively manage their clients. Using machine learning and AI to anticipate and automate client work will be how wealth managers compete with the scalability of robo-advisors.
Those who do this will succeed and grow their firms. Those who don’t will fail. It’s no longer a “maybe.” The technology has been tried, tested, and proven effective. If your firm is not using it, your competitors will eventually take your clients away from you.
Clients want a modern user experience. Even senior citizens are computer savvy these days, so why not use the tech? Many folks thought video conferencing wouldn’t work and look at what happened in 2020. The world has changed. It’s time to change with it.
OPINION POST
[NOTE: The opinions expressed in this post belong to the author and are for general informational purposes only and are not intended to provide specific recommendations or advice for any individual or on any specific investment product. The sole purpose of this opinion piece is to provide education about the wealth management industry.]
The post Top Trends in Wealth Management in 2021 first appeared on Blueleaf.
]]>The post How Fintech Can Help Drive Down Compliance Costs in Wealth Management first appeared on Blueleaf.
]]>With great power comes great responsibility. The wide-spread use of data technology has resulted in increased regulation. Compliance costs have gone up. According to Globalscape’s Ponemon Report, they grew from $16 million to $30.9 million between 2011 and 2017.
Keeping track of all the financial regulation changes in the past few years has overwhelmed human compliance departments. One solution to that is to add more bodies, but this is 2021. Fintech compliance apps, aka Regtech, are bringing automation to the compliance space.
Surprisingly, there isn’t a federal statute that governs data protection. The Federal Trade Commission (FTC) can bring enforcement actions for deceptive practices, but data protection is handled by the states. For national firms, that’s fifty sets of regulations to understand.
Stop and think about this for a moment. Without yet mentioning SEC, FINRA or the DOL rule, compliance officers are already forced to monitor business activities to prevent FTC enforcement actions and ensure compliance with state and local data protection laws.
It’s a massive burden to carry, and the rules change each time a new administration comes in, whether on a state or federal level. The new SEC chair, Gary Gensler, is already pushing for new rules on SPACs and wants to regulate digital assets. That’s more work for compliance.
Last, but not least, there’s the DOL Rule. It’s been around for a while, but there’s a new component this year expanding fiduciary duties when handling retirement plans. Enforcement is scheduled to begin December 2021, so there’s not much time left to make changes.
Reporting of annual performance (for RIAs) and disclosure of fees and commissions is required. How you do it is another story. That’s where fintech apps can start bringing your compliance costs down. Using reporting software that automates the creation and delivery of these reports, or better yet, brings it all online can substantially reduce the staff time and costs associated with reporting.
Another compliance headache is advisor to client communication. There are times when a text message seems like the quick solution to a simple question, but is it compliant? We’ve been trained not to do it. But a next generation client mobile app with built in messaging that makes the messages secure and archived by default can eliminate most concerns.
Expand the thought process and think about the daily tasks that must be compliance approved before you can complete them. Automated reporting only requires one review. Every report will follow the same guidelines after that. That should cut back on compliance spending.
Financial technology eliminates the need to examine each task and instead gives you one “system” that needs compliance review. Setting parameters to satisfy regulatory requirements is part of the set-up process. Everything else is automated after that.
As regulatory complexity increases, many larger advisory firms are adding Regtech apps to their software stack. This doesn’t just help existing compliance officers. It’s also a recruitment attraction for risk officers, general counsel, and change managers.
Advisors doing business in the European Union can attest to the value of Regtech. Since the adoption of the General Data Protection Regulation (GDPR) in 2016, they’ve had to add additional data protection guidelines, which compliance needs to keep track of.
In certain situations, the existence of a human compliance officer is not required. I’ve seen it with a lot of independent firms (RIAs) who prefer to use compliance “consultants” instead of hiring another full-time employee. That might be more cost-effective, but it’s dangerous.
Adding Regtech that monitors changes in state and federal regulations can save a firm the cost of a full-time compliance officer and eliminate the need for a compliance consultant. There may even be a built-in compliance “help-desk” if you want to speak with a human.
One of the functions built into Blueleaf early on was the ability to run reports specifically to answer the questions of any auditors who come to visit you. This can include communication history, client aum, and billing information.
Those who have been through an audit understand how important it is to have this information readily available. Blueleaf also has our own compliance people who monitor our platform and review new features before we launch them, ensuring your reporting will be compliant.
The cost-saving component of this is automation. Tasks that we’re able to quickly perform for you or that you can execute yourself can save thousands of dollars per year in potential compliance fees. When put into context, that might even offset your subscription costs.
The post How Fintech Can Help Drive Down Compliance Costs in Wealth Management first appeared on Blueleaf.
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