Read Time: 6 Minutes
Voice of the Advisor
3 Strategies to Build a Modern Financial Advisory Practice – Whatever Your Firm Type
Key Takeaways:
- The right tech stack can help financial advisors optimize their areas of focus.
- Wirehouses offer the most products – but other firm types are also ramping up.
- Advisors have a growing interest in offering holistic financial planning.
Despite the similarity in title, a financial advisor’s day-to-day can look very different depending on their firm type. For example, advisors in wirehouses will have different needs, strategies, and tactics than Registered Investment Advisors (RIAs). By studying trends across firm types, advisors can identify strategies that their competitors are using to succeed and respond accordingly.
In our 2023 Voice of the Advisor study, we survey 650 advisors evenly distributed across the following firm types:
- Wirehouses
- National and Regional Broker/Dealer
- Independent Broker/Dealer
- Insurance Broker/Dealer
- Retail Bank Broker/Dealer
- Registered Investment Advisor (RIA)
Below are 3 observations about advisor behaviors and needs across firm types that can lead to a successful advisory firm strategy.
The right tech stack can help financial advisors optimize their areas of focus.
In our sample, advisor focus varied by firm type.
- Wirehouses and National and Regional Broker/Dealers were more focused than all other groups on investment planning and portfolio analysis.
- Independent Broker/Dealers prioritize goal-based planning, which may indicate that they’re responding to a generational shift in mindset.
- RIAs and Insurance Broker/Dealers were more likely than every other group to be focused on proposal creation, research, and marketing.
But across the board, advisors needed the most help in the areas where they’re spending the most time. There could be a variety of reasons for this, including:
- Rapid technology advancements– for example, the emergence of AI and its potential disruption to the advisory landscape.
- Prioritizing development of specialization around products or services.
- The need for automation so they can reallocate time spent in back-office and administrative tasks to client engagement and relationship building.
Software providers can help support an advisor’s areas of focus – and our survey showed that advisors across firm types are already looking to them for help.
Advisors across firm types indicate they are looking for help in their areas of focus.
According to Kitces’ Financial AdvisorTech Solutions Map, the options are vast and varied. Beyond the bread-and-butter solutions for financial planning, investment management, and client engagement, software providers can also support specialized planning (such as estate planning), AI assistance, operations, and digital marketing.
Though their areas of focus (and need) might be different, with the emergence of new technologies like AI disrupting the advisory landscape, now could be the time for advisory firms across the board to evaluate their tech stacks.
Go Deeper
Listen to our on-demand webinar to learn about utilizing technology to reliably gather client profiles and preferences to be reflected in their portfolio.
Wirehouses offer the most products – but other firm types are also ramping up.
Our Voice of the Advisor survey showed that the more products an advisor offered, the more products their clients adopt. Today's investors are more knowledgeable than ever before. They know about different product types and may ask their advisors about whether they should include them in their portfolios. In response, advisors may also proactively offer different investment vehicles to get ahead of the curve.
By having a more diversified arsenal available to their clients, advisors can demonstrate expertise and a higher level of client personalization – the top two factors that investors value in advisors, according to a recent survey of 400 investors.
Wirehouses offer more products than any other firm type.
As it stands, Wirehouses offer the most products by far. They also have the most diversified AUM – with 27% outside of stocks, MFs, bonds, and ETFs. This 27% is relatively evenly distributed amongst model portfolios, annuities, private equity/debt, REITs, and liquid alternatives.
In comparison, Insurance Broker/Dealers have 58% of their AUM outside of stocks, MFs, bonds, and ETFs, but 51% of that is in insurance and annuities. RIAs are a close third to Wirehouses at 24% - all others are at 17% or 18% and have more reliance on traditional products for their AUM composition.
However, our Voice of the Advisor study shows that more and more advisors are realizing the importance of a diversity of offerings. Even the firm types who have traditionally offered fewer products are the most likely to be ramping up their product offerings in the next 12 months. Greater access is creating demand for a broader product palette, so diversifying advisor offerings will be key to successfully growing their business.
Go Deeper
As advisors adopt new products, they need trustworthy data to see how different funds are performing. Download our report on fund flows to analyze leading and lagging fund categories.
Advisors have a growing interest in offering holistic financial planning.
Offering services outside of traditional financial planning and investment management can be another diversification route for advisors to take. In the next 12 months, about 25% of advisors overall plan to offer another service – but which service they plan to offer varies by firm types.
Advisors across firm types are offering more services.
Independent Broker/Dealers offer the most services and are more likely than most other firm types to provide their clients with retirement planning, estate planning and trusts, and educational planning. Not surprisingly, Wirehouses and Retail Bank Broker/Dealers are more likely than all other firm types to offer banking services to their clients. Wirehouses also plan to focus on educational planning, estate planning, and trusts.
Clients increasingly want a holistic experience. Advisors can respond by developing specialty areas themselves, but they can also develop a network of specialists that they outsource to via personal recommendations.
Case in point – Independent Broker/Dealers, RIAs, and Insurance Broker/Dealers are more actively responding to their clients’ tax needs. But the actions they take in response can vary between:
- Advising clients to seek independent tax advice.
- Using tax planning strategies to optimize clients’ tax outcomes.
- Discussing and educating clients on potential tax benefits such as tax-loss harvesting and tax-efficient strategies.
- Partnering directly with a trusted CPA or CPA firm to enhance the value of their clients from a tax perspective.
Regardless of which route an advisor chooses, understanding the behavior of their peers can help them differentiate themselves from competitors.
Go Deeper
Download Morningstar’s Guide to Tax Managed Investing to learn about the benefits of intentional tax management. Access a comprehensive blueprint for subasset, categories, and investment vehicles, as well as best practices for tax-loss harvesting.
Advisors of all firm types share the same goal: serving their clients. But financial innovation, digital connectivity, and market access are reshaping the landscape of investment opportunities and financial planning. Build a modern advisory practice with Morningstar’s insights and solutions for the Evolving Investor to ensure your firm maintains a strong competitive advantage.