A new survey from InResearch sponsored by Pershing Advisor Solutions and the Ensemble Practice finds that conversion of self-directed clients is a bright spot in an otherwise slowing market for financial advisory services.
The survey finds that the industry is still growing, though at a slower pace than in previous years. Revenue growth averaged just 8% in 2015, versus 14% in 2014 and 18% in 2013. More than half the firms surveyed (54%) missed their growth targets for the year. In a flat year, without much help from market appreciation, most firms found that it was more difficult than they anticipated to attract new clients and assets.
Against this backdrop, self-directed investors represented an opportunity. In fact, the average independent firm increased its total number of clients by 16% in 2015, but nearly three-quarters of them (74%) were self-directed investors prior to choosing their current advisers. Only 16% of new clients had been working with a wirehouse firm or bank, while 10% were won from a competing independent firm.
Craig Price, CFP, CTFA, of Florida-based Price Wealth Management.says that self-directed investors are one of his firm’s fastest-growing market segments. “We serve a lot of very capable executives, now retired, but coming from an environment where they are used to managing their own assets. We also work with busy dual income professional families, where they just don’t really have the time do to it all by themselves, and they would like a co-pilot now and then,” says Price. Price’s firm offers a service called Self-Directed Plus to these independent-minded folk, a non-discretionary relationship where the clients make all the decisions but have full access to Price Wealth Management’s advice and guidance whenever they need it.
However, Gabriel Garcia, a managing director at BNY Mellon’s Pershing Advisor Solutions, cautions that slowing growth as a sign that the pool of self-directed investors ripe for conversion may be drying up, especially among the heavily targeted baby boomer demographic. “Wealth advisors have spent a significant amount of time cultivating new clients from the self-directed channel,” says Garcia, “You’d expect that winning a new client who has never been served by a professional advisor is a little less difficult than competing for new clients who have already been served. So the question becomes, if we have cultivated the self-directed opportunity extensively for the last decade and a half, have we exhausted that opportunity?”
Garcia sees the financial advice business at a turning point, in which advisors will have to reorient their efforts to maintain growth. “Advisors who have been focused on boomers who already have wealth, will either need to pivot to a new demographic or begin to expand the opportunity set just beyond the self-directed channels,” he says.
For more information on the self-directed opportunity, where it’s headed and how to maximize it, download Premier Trust’s free white paper, “A little direction: Independent financial advisors have been growing by converting self-directed advisors, but can it last?”
