Times are tough. Fee compression is real, and potential clients across the country are demanding smaller fees for more services. This would be bad enough in normal times, but in this era, with a probable depression looming, millions out of work, and many more millions uncertain about their economic futures, it becomes even worse. The squeeze is on for financial advisors, and it doesn’t look set to ease up any time soon.
Given the situation, financial advisors need to be proactive. Are there budget cuts you can make without hampering your ability to operate? Are there opportunities for optimization that have gone unnoticed? Tightening your belt may not mean cutting your bottom line.
What do you really need?
Some things are indispensable. By definition, every advisor needs an investment tool: a mutual fund, a third-party equity manager, or an internal investment team. But other tools may be more trouble than they’re worth; financial advisor chatbots received good buzz a few years ago, but today few advisors expect them to play a large role in the fintech future. If a tool is more hype than help, get rid of it.
Even if a particular kind of tool is essential to your operations, you shouldn’t assume that you’re still receiving the biggest possible bang for the smallest possible buck. Yesterday’s bargain may be today’s bad deal. Today’s RIAs are turning away from traditional custodian relationships because new tools offer more utility in a small package. Portfolio rebalancing and execution tools are being consolidated with performance reporting and planning software; account aggregation and artificial intelligence aren’t just providing advisors with fuller understandings of client holdings, they’re also enabling advisors to take action more quickly.
Financial advisors employ a whole suite of products, from CRMs to investment management to planning suites. They require solutions for compliance, for secure file sharing, for marketing, and for portfolio management. In the past decade, the fintech market has exploded. That can be daunting for an advisor, who will have to navigate dozens or hundreds of options, but it can also be liberating. Competition, after all, tends to drive down prices.
To take just one example, at present the market for portfolio management tools is crowded. No one company dominates. There’s no standard feature list, so solutions have varying capabilities. Nearly as many financial advisors use Albridge or Envestnet as use Morningstar Office, while Orion, Schwab, and a dozen other companies are looking to grow their market share. It’s entirely possible that you can get better deals on better tools for lower prices.
What’s a fair rate?
Competition in the market might mean savings on new software solutions, but you should also re-evaluate the fees you’re paying on investment products, especially if it’s been a few years since you last checked. New investment vehicles can save on fees and give advisors tools beyond traditional stocks and bonds.
Perhaps you’ll find that newer funds can offer you and your clients superior functionality for a lower cost. But even if you’re convinced that over the long run a new tool is better for what you want to do for your clients, there are still vital decisions to make and plans to devise. It’s worthwhile to save 0.3% in fees for a 0.5% increase in returns, but you must also consider the costs of transition and implementation. Making a smooth switch requires planning and consideration.
How do you make the move?
If you’ve done your research, consulted your peers, looked at industry trends, and then decided nothing in your practice needs to change: Congratulations. But if you’ve discovered there are things that might be improved or adjusted, then it’s time to begin planning how you can make a change.
Money isn’t the only thing you may be moving as you streamline your processes. Data transfer is just as important: You need to ensure that all data you’ve generated migrates correctly. Unfortunately, this can be a challenge, and “ease of input” of financial plan data can vary, and it’s possible that some adjustments will require manual data re-entry. This can be a great way to re-familiarize yourself with your clients, but it’s unlikely to be a process you can complete overnight! Vise offers portfolio transition tools that make the process as simple as possible. You don’t want to create tax or regulatory liabilities when you move client funds around, and Vise’s modern portfolio transition tool strives to make everything run smoothly.
Looking to tomorrow
If you’re planning to change your processes, make sure you’re considering the impact setup will have on your operations. Change can be a difficult process, and occasionally a painful one, but financial advisors are uniquely well-suited to face it. Any good financial advisor thinks in the long term; improving your budget and changing your operations is just another way to invest in the future. Fighting fee compression, accelerating your business processes, and offering quality service to your clients: What could be better?
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Monte Carlo simulations have material limitations. Market movements may be more or less extreme and more or less frequent than those that occur in the model. Certain asset classes and investments have shorter histories than others and may not be as reliable. Market Events and other factors may influence the reliability of the potential outcomes.
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