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How Have Broker-Dealer Practices Evolved, and What’s Coming Next?


The world of investments today isn’t the same as what it was 20 years ago. Back then, the services that financial advisors provided their clients were much more 1:1 matched. As Rob Pettman, EVP and head of wealth management solutions at LPL Financial can attest, it was “a bit like being a Home Depot floor worker.”

“When I joined the company 19 years ago, it was solving individual problems,” he says. “When you’re an independent firm, you’ve got a large menu of investment products available for advisors to use with their clients. The role that I took was on a desk that was designed to help advisors sort through the product shelves and find the best solutions for their clients—like an investment product consulting role.”

In today’s landscape, however, advisors have evolved greatly in how they work with their investor clients on wealth management and exploring opportunities.

Rob Pettman joins the Big Picture in Practice hosts to talk about the evolution of the broker-dealer landscape. What it was, what it has become, and what it could be down the line.

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The Evolution of the Broker-Dealer Landscape: How has this space evolved?

Here’s the big question: How badly does the market need to rethink its traditional notions of broker-dealers and advisors?

Answer: Very badly.

“One of the biggest transformations that has occurred over that period of time is the overall macro shift from brokerage to the advisory model,” Rob explains. “When I joined LPL in 2005, there was still a healthy balance between brokerage and advisory business. But if you fast forward today, that balance really doesn't exist.”

Given that budgets have been largely reassessed and reallocated between traditional brokerage services and advisor services (typically using about 70 to 80 cents of every dollar going into an advisory), there’s a distinct evolution of needs that can’t be ignored. There are some products in the brokerage world, like 529s and annuities, that are still popular in a brokerage context. But for the most part, the businesses really transitioned to advisory.

“That’s the big change that I've seen, and that's been good in terms of how advisors are leaning into being able to solve problems for investors,” notes Rob. “I think it's actually connected to the same idea that when you move from brokers to advisory, it's a higher standard duty of care. And advisors have now the quest of figuring out how to create scalable advisory practices, and then also to lean into new expectations of the value proposition that are going to be more inclusive of financial planning, estate planning, taxes, things of that nature.”

In other words, advisors are now reframing their services to deliver value beyond traditional investing and meet the expectations of investors who demand more.

The Evolution of the Offering: What tools are you bringing to bear for advisors today that weren’t in play 5-10 years ago?

If we stay within that framework of thinking about scalable practices and ways in which we can offload some of the operational burdens that advisors face in their day-to-day, they can then focus more on delivering value to the investor. There are many opportunities we’ve developed along those lines.

“One great example is that we have a workflow that helps to automate the annual review process,” Rob shares. “When you move from brokerage to advisory, you have a fiduciary responsibility to meet with the client and check in where they are relative to their goals, if it needs to change annually.”

We have designed an experience that we call Meeting Manager that syncs up the advisor’s calendar,” he explains. So it was sort of having an anticipation of a client review that’s coming alongside the CRM for any potential notes that would need to be reviewed in advance of the meeting, alongside the performance reporting engine that knows to develop the performance report, the day before the meeting, such that they will, you know, alongside of the agenda and other supplemental materials that's packaged and delivered to the advisor that they have the meeting.”

Tools like these on the belt of a broker-dealer-turned-advisor make a huge difference in time. Normally this type of process would take a few hours, but tools like this cut that time down and save both investors and advisors time.

How has the investment menu shifted? How are advisors building portfolios today?

Technology makes the whole investment process more streamlined and, in some ways, more connected.

“Back in the day, a financial advisor would get a significant amount of information about investments. As you look at how technology has really evolved, you see that advisors have more tools at their disposal to filter or shop the markets, if you will, for product solutions that they never had before,” says Rob. “And a lot of the ways in which they were interacting with their wholesaler have essentially been replaced with a number of different pieces of technology that enable them to accomplish the same thing, and potentially even more.”

Even though the traditional wholesaling model hasn’t changed, the ways that advisors are building model portfolios and sourcing investments has. And that’s because of technology.

“From our viewpoint at LPL, we look at how we might help our partners,” Rob notes. “There are some really interesting opportunities for how we might connect with them differently in a digital context where an advisor might make investment decisions that can create a different level of engagement and value that's obviously servicing and helping the financial advisor, and then certainly helping the asset manager participate in the conversation.”

The Future of Broker-Dealers-to-Advisors

When asked what he thinks will be the most meaningful forces that will shape the future of this business, Rob had thoughts on each of the top contenders: Regulation, consolidation, and evolving advisor demographics. And their level of force comes down to one major advancement: the application of more technology to change the way advisors and investors interact.

“There are all of these capabilities that are on the horizon,” Rob says. “When you look at just how technology can be pulled through to create productivity, we haven't even accounted for the impact that AI might have on a financial advisor and their practice, and really just the ability to do more and lean more into the advice model and to cover more of these areas that are sort of related and adjacent to the core offering of being an investment advisor.”

What makes technology the driving force behind shaping the future of advisors' practices is taking them from being a 1:1 service source and into other areas of planning, doing more with people, and offering a comprehensive solution to long-term investor goals.

"Looking forward as to what exists out there, I do think you have this theme of being able to grow and evolve the advice model in and of itself and be more open to comprehensive technology, like AI,” Rob notes.

But these things must be balanced and done the right way. And as advisors go about creating those experiences, Rob reminds us all that they still have to work within the regulation ruleset of what is possible and be smart and careful about how they assemble these scalable structures to be efficient as well as capable of personalization. Multiple strategies will be needed to support it all.

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