• / Free eNewsletters & Magazine
  • / My Account

Related Content

  1. Videos
  2. Articles
  1. How to Make the Most of Your 401(k)

    In this special presentation, get the answers to key questions about the quality of your plan, whether your savings are on track with your goals, how to allocate assets, and what to do with assets when you leave your job.

  2. 5 Tax-Planning Tips for Retirees

    Morningstar's Christine Benz offers hints for how retirees should approach taxes in regard to portfolio withdrawals, RMD reinvestments, property, health care, and estate planning .

  3. 6 Ways to Curb Taxes in Retirement

    Investors who build tax diversification, get savvy with RMDs, mind state taxes , and avoid the 'tax torpedo' can lighten their tax loads considerably in retirement, says Morningstar's Christine Benz.

  4. 7 Habits of Successful Investors

    Special presentation: Learn how 'cheaping out,' building in discipline, and other simple steps help successful investors get it done.

Showing Your Value

A client-centric approach creates opportunities for advisors and clients.

Kunal Kapoor, 02/11/2016

Think back to when you first entered the profession. Chances are you were focused on providing your clients a positive, long-term outcome, but the challenges to achieving that important goal were manifold. Not only did you have to get your client focused on the long term, but also you were limited by technology, information, and the ability to differentiate your services from other advisors. How often did a prospect or client begin a conversation with the question, “I’m not sure how to evaluate the value of your services”?

That is rapidly changing today.

Technology advancements are having an impact on the profession as meaningfully and positively as ever. Critically, they are allowing advisors to outsource many of the time-intensive, low-value functions that might otherwise soak up their time. Now, advisors are able to shift their focus to client-centric, practice-building activities. And as information becomes more timely and complete and fully integrated into advisors’ work flow, the quality of their advice will only get better. No longer do advisors have to worry, for example, about how to account for held-away assets as part of an overall plan. With the emergence of data-aggregation services, such as By All Accounts, such challenges are resolved quickly.

Importantly, these changes are driving client awareness. Clients today are better at evaluating the value an advisor is delivering to them and are more concerned about what, if any, conflicts an advisor might have. The trend toward fee-based billing is a direct result of this awareness, and with the likely adoption of a fiduciary standard in the years ahead, it will become de rigueur. The bottom line: Not only are clients getting better at asking questions, but also advisors are getting better at providing the answers. The best advisors will have little difficulty explaining their value to clients.

Client-Centric Approach
It’s no surprise that today’s top-tier advisors are leading the way by redefining the type of activities that advisors should embrace. The good news is that advisors aren’t lacking for options, but the bar is much higher than it was even a few years ago. Today’s advisors must align their thinking and approach more closely to those of their clients. Consider, for example, that clients often seek advisors because they need clarity and assistance in taking a goals-based approach to their finances. For many advisors, a goals-based approach will require them to adapt their practices and realign their priorities. The conversation now shifts from the veracity of stock tips a client may have heard at a cocktail party to whether the advisor and the client are on the same page about saving for college, preparing for retirement, or buying a house. The client is focused on what matters most to reaching these goals and wants to understand how the advisor is helping him or her get there.

This is where technology-based solutions such as robo-advisors enter the picture. These services, which are built on top of automated advice engines such as Morningstar’s Wealth Forecasting Engine, have captured the media’s attention, because they’ve also gone further in terms of introducing interfaces that are intuitive, easy to use, and allow for collaboration between and advisor and client. And the fact that they are mostly index-based solutions has kept costs down.

Collectively, they present a challenge to asset managers who are primarily focused on pitching individual strategies. It’s not that these strategies don’t have a place in the industry any longer, just that it becomes critical to pairing them with the right goals. And with cheap beta abounding, the premium pricing active managers have enjoyed will only remain pressured. To be clear, this isn’t the death knell for active investing, just a welcome reduction in fees and weeding out of weak, underperforming strategies at a pace that hasn’t been witnessed before. That means fewer asset managers over time, but ones whose value proposition is more compelling.

Additionally, asset managers seem to be warming to the robo-services themselves. Just recently, two of the largest asset managers, BlackRock and Invesco, made waves by purchasing FutureAdvisor and Jemstep, respectively. This led to a lot of head scratching, but if you step back for a minute, their moves seem perfectly rational. First, as much as all the talk has been about these services appealing mostly to millennials, early trends suggest that the types of households that make up the core of advisors and asset managers’ clients are the ones signing up. That’s right, wealthier, older households aren’t ready to be written off as an important demographic in this space!

Guest Author

blog comments powered by Disqus
Upcoming Events

©2014 Morningstar Advisor. All right reserved.