“What got you here, won’t get you there.”
It was the theme of Thursday morning’s opening keynote presentation from TD Ameritrade Institutional president Tom Nally at the company’s National LINC conference in Orlando.
“While a generation of trailblazing registered investment advisors built their profession into the fastest growing wealth management channel, advisors need to embrace technology, build trust in the marketplace and attract new talent if they want to stay on top,” Nally told the roughly 3,000 advisors in attendance.
“To keep their focus on clients in the way that has helped set RIAs apart, advisors are going to need the right tools in place and they’re going to need to adapt to a fast-changing business environment,” Nally said. “RIAs can take advantage of the waves of digital automation tools and ‘big data’ insights hitting the industry right now. It’s a huge opportunity.”
Embracing Automation and Digital Advice Technology
Rather than feel threatened by technology that automates investment management and other tasks, Nally said, RIAs should embrace it. Not only can firms operate more efficiently with the right tools, but automation can free valuable time that’s better spent working with clients and building their businesses.
But Nally emphasized that installing the latest technology by itself is not enough. To get the best possible results, RIAs need to feed these systems heaping portions of market information and competitive insights, and that’s what “big data” analytics is all about: enabling advisors to benchmark their performance, identify ways to better manage their businesses and source new growth opportunities.
To help bring big data capabilities to advisors, TD Ameritrade announced the acquisition of research and consulting firm FA Insight.
Articulating the Value of Advice
Technology advances have impacted the RIA space in another significant way, Nally added. The emergence of low-cost online advice platforms has shined a spotlight on investment management fees. Nally said RIAs, who provide a comprehensive range of wealth management and financial planning services, need to do a better job articulating what they bring to the table.
Traditional pricing strategies, typically an investment fee based on assets under management, don’t truly reflect the value of services rendered and leaves RIAs more vulnerable to fee compression. The challenge, he said, is to tell a better story about the value of comprehensive wealth management. Morningstar research, he noted, shows that good planning decisions—separate from market outperformance—can increase an investor’s retirement income by as much as 29 percent.
“We need to shift the conversation from a focus on the price of advice to talking about the value that RIAs deliver to clients through good planning,” Nally said. “Research shows that objective advice and having a personal connection is more important to investors than price or beating the market.”
Advocacy Agenda and Online Action Tool
Nally then turned to advocacy in Washington. One of the urgent issues at hand is the pace of Securities and Exchange Commission advisor examinations, which Nally noted is currently once every 10 years on average.
This lack of oversight “is a powerful talking point our competitors use to sell against RIAs and we need to take it off the table,” Nally said. “It’s really important that advisors act as their own advocates on this one, because trust and confidence is on the line.”
To make it easier for advisors to stand up and be counted on this and other issues, TD Ameritrade created the Advocacy Action Tool, through which advisors can send messages directly to representatives in Congress.
Reaching for NextGen
The industry must also find ways to elevate its reputation among the Millennials–a generation of that came of age during the financial crisis. Nally said this group of more than 70 million Americans is now the single biggest generation and the expected heirs to trillions of dollars in wealth.
“RIAs must turn this next generation into its next clients if it hopes to sustain the industry.”
At the same time, the industry faces a dramatic shortage of advisors because too few Millennials are ready to replace a wave of baby boomers heading into retirement. Nally told attendees that RIAs must expand their efforts to foster and hire a new generation of advisors.
Last November, TD Ameritrade Institutional agreed to be the founding sponsor of the CFP Board’s new Center for Financial Planning and made a “multimillion dollar” contribution. Nally explained the Center has the capacity to rally a broad array of organizations to foster next generation talent, elevate the academic standing of financial planning and address the lack of diversity. A cooperative effort across the financial services industry can achieve these aims faster than any one company on its own.
“It’s been an amazing run so far, but now we as an industry have the responsibility to strengthen and defend the profession for future generations,” Nally said. “That responsibility includes maintaining investor confidence, building trust and expanding the pipeline for talented new advisors.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
TD Ameritrade has always taken an open approach to technology decisions on the VEO platform instead of picking winners and losers. While this requires more legwork for their technology staff around integration and support, it gives advisors a wider range of options. You can read my summary of the National LINC conference here: http://bit.ly/WMToday-TDALINC