Don’t let this happen to you

I have fond memories of wandering the aisles of Blockbuster video in the 1980’s. It was usually a Friday evening and I would rent multiple VHS tapes for the weekend. It became a social scene. We would share our favorite movies with each other and warn our friends about the rotten tomatoes. However, these are memories, not today’s reality. What was once a brilliant business model is now a story of what not to become.

The traditional business model in the financial advisory world involved a financial adviser who grew his/her business by selling a product or process to people who were planning for their family obligations. The products could have been stocks, mutual funds, ETF’s, annuities, insurance policies, or REIT’s. These products compensated the adviser in the form of commissions or fee-based revenue. Typically, an experienced adviser built the business around middle market investors, with the exception of a few, wealthier investors. This model has existed for many, many decades and has caused a certain level of complacency to settle in. Whenever I ask advisers how they grow their business, I almost always hear, “I rely solely on referrals.” That answer is supposed to convey pride and confidence, but I see it as something completely different. I know these advisers can’t rely on referrals to grow their business at any really significant rate. Nobody can predict with any real certainty how many referrals they will get, nor how good they will be.

The real catalyst for change needs to be an acknowledgement that the financial services industry has completely changed. Zero commissions on sales of stocks and ETF’s at custodians. Mutual funds are constantly being reduced in price due to competitive forces and regulatory forces. Now advisers have an even bigger challenge in front of them that could cause a significant number of them to exit the business involuntarily: robo-advisers. When I ask financial advisers what they think of these things they often act dismissive. Some have even shared that they send their smallest clients to the robo-adviser. Wow. Those advisers are training their replacement. These same advisers are clueless to the rapid growth of robo-advisers. WealthFront now manages $20 billion. Betterment has $16 billion. They got here by delivering an investment experience that costs 25 basis points. I don’t think the quality of robo advice is better than a human’s advice. However, most of these investors are middle-market investors who have little confidence that their savings are large enough to require significant risk management. For that reason, price is the only thing that will matter to these investors. As artificial intelligence improves the experience of these software programs, more investors will flock to them because the experience will feel the same and will cost a fraction of what a human will charge. I predict 30% of advisers will exit the business in three to five years. Survival will require significant behavioral change. It will require a focus on middle-class millionaire investors who have enough money at risk that they will only work with qualified, real financial advisers. This group is not an easy group to attract. They are self-made millionaires who have trouble trusting financial advisers. They spent their whole lives accumulating this wealth and are fearful of trusting the wrong person who could cause them to lose that wealth. Their lack of trust is demonstrated by either lying about their challenges/needs or withholding key facts that complete the story. Building a business with this group requires a smart business plan, a unique client service model, an understanding of how to effectively connect on a deep level with these challenging personalities, attention to detail when delivering a more human-centric financial planning experience and an objective mechanism for reviewing results of the plan each year.

On January 1st of 2020 Real Intelligence LLC will be available to empower financial advisers to overcome the competitive challenges of artificial intelligence. This program includes a deep dive into the world of Dynamic Mapping and the Essential Family Office. This intense program will prepare those advisers who are up to the challenge of becoming DM certified to also build that “perfect” book of business, usually defined as serving one hundred clients who each have over one million dollars in assets to be managed. If you would like to learn more about this innovative business strategy and when it will be coming to a city near you, please contact me at


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