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Q&A: Learning From The Industry's Growing Group Of "Super-Ensemble" Advisory Firms

Eliane Chavagnon, Editor - Family Wealth Report, March 23, 2015


The report mentions industry consolidation coupled with fewer clients that don't already have an advisor – what evidence is there of the latter? And do you think consolidation is good for the industry as a whole and particularly end-clients?

According to Spectrem Group, only 28 per cent of affluent and high net worth investors don't use an advisor. It stands to reason that as wealth management has been prominently available to the affluent and HNW, those who have decided to do this on their own are very likely to stick to that decision. Similar reports from Spectrem from back in 2001 were reporting 30-40 per cent use of advisors and many more self-directed investors. Overall, it seems that the affluent and wealthy have been exposed to advice for quite some time and have made their choices.

Furthermore, AdvisorImpact Surveys report that only 2 to 5 per cent of clients who have an advisor are unhappy with that choice – meaning fewer are switching.

Given the seemingly aggressive nature of super-ensembles, is there scope for potential entrants looking to break into the wealth sector? Is there a risk of diminishing appeal to go solo in light of fiercer competition?

According to Cerulli, there are 3,000 mega-teams in the wirehouse channel and super-ensembles account for 1-2 per cent of the RIA community; there appears to be plenty of scope for those who want to be entrepreneurs and plenty of advisors capable of it.

The risk is not the diminishing appeal due to fiercer competition, although that does play a role. The greater issue is the economics of running a solo business with respect to the regulatory requirements and pressure on operating margins.

The report goes into considerable detail about the strength of super-ensembles and their leading growth strategies. But what would you say are their main challenges today? Besides each other, who are their main competitors?

One of the biggest challenges is cultivating and maintaining a growth culture. The largest contributor to growth for RIAs is referrals. Tapping into that engine in a proactive manner and avoiding the old-school “who do you know” transactional question is critical.

Advisors who focus on cultivating referrals, and institute a program with tools and skill development, will not be subject to the serendipitous referral, but a continuous referral stream. This all needs to be supported with target marketing efforts that speak specifically to an advisors optimal client or niche.

What we observe as the primary source of new clients and assets are not other RIAs, but the validator/do-it-yourself-er at a discount broker or clients served by the traditional financial services mega-brands. Advisors experience very low attrition so the competition tends to be one sided, the challenge is getting the at-bat.

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