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How Wealth Management Firms Must Evolve To Address Growing Client Needs

Hightower Chairman and CEO Bob Oros has seen significant growth and change in the wealth management space in recent decades, as more and more high-net-worth clients turn to registered investment advisors (RIAs) for advice. As the leader of a firm that has played a pivotal role in the RIA industry’s evolution, he shares his views on what clients are looking for and how firms must adapt and innovate to meet their needs.

Russ Prince: From a client's perspective, how has wealth management delivery evolved since you joined the industry 30 years ago?
Bob Oros: Affluent individuals and families have come to expect more than just an investment portfolio. They want their advisors to play a role in ensuring not only financial wellness but also emotional, physical and overall balance and wellbeing—what we at Hightower call “well-th.” Given this, advisors have now become one of the most trusted confidantes in their clients’ lives.

Up until about 15 years ago, RIAs were essentially a cottage industry, but now more than ever, firms are concluding that they need to provide a robust set of value-added services to support their clients in multiple aspects of their lives. Clients look to their advisors for support on career transitions, generational wealth transfer, divorce planning, financial literacy, elder planning and more. 

When it comes to their investments, clients are increasingly asking for more distinctive, customized strategies that align with their desire to make a positive impact. Ultra-high-net-worth clients are asking for guidance not only on financial planning, investments, trusts and estate planning, but also business management support and day-to-day financial concierge services. 

It’s really the whole picture, so it makes sense that larger, well-resourced advisory firms would seek to innovate to meet the growing demand for a truly streamlined experience. It’s gone way beyond partnering with third-party professionals. To attract and retain new clients, it’s become clear that adding services—in house—makes for a more seamless, sticky offering. At Hightower, we’ve been singularly focused on building and acquiring services and talent to deliver this. 

Prince: How has the advisory business itself changed, in terms of growth potential?
Oros: The market for financial advice is enormous, but that hasn’t necessarily translated into growth for many stand-alone RIAs. In the RIA channel overall, organic growth—which includes net new assets, excluding market gains—is only about 5% annually. Advisor-client relationships are often extraordinarily valuable, but in many cases, advisors are the best-kept secret in their own markets. 

You cannot grow if you are a secret. 

A big problem for smaller RIAs is, they simply don’t have the capacity and resources to scale. It’s also a time issue. We meet with many firms, even those with 8-12% organic growth, where principals are so busy serving clients that they don’t have time to think strategically about how they can deepen relationships and attract new assets. 

Many advisory firms are small businesses, with limited resources for investing in the critical growth drivers such as marketing and technology to enhance scalability and deliver the customer-facing tools that clients, especially younger ones, expect. Another key factor holding back growth is a lack of time and resources to train the next generation of leaders to ensure continuity after the principal retires.

All these scalability challenges add up to some firms realizing that if they’re going to meet growing client expectations, they need to make a change. For many, this means joining forces with a larger entity. Hightower has embraced this. We’ve made a significant investment in the operational, talent, and business acceleration resources firms need to bust through barriers to growth. Last year, our cumulative organic growth rate, across all our advisory businesses, was over 9%. We also believe in providing inorganic growth services to help advisors add bench strength, as M&A can be difficult, risky and time-consuming for smaller firms to undertake on their own.

Prince: There are so many different business models now in wealth management. How do you see the industry developing? 
Oros: We’re still in a period of evolution, with advisors having a wide range of business models to choose from. Whether an RIA is looking to sell to a larger entity like Hightower or simply leave a wirehouse or an independent broker-dealer and shift to another operating platform, advisors need to understand what they want, and what their non-negotiables are, so they can make the decision that’s right for them. 

For RIA principals looking to scale, the key question they should ask themselves is: “Do we have a fast-growing business that is attractive to buyers?” Advisors should be clear on how much operating control they want to retain, in areas such as how they invest client money, and whether they want to keep their own brand. 

When we acquire an RIA, we only seek out high-growth firms, so it’s important to us that the principals maintain operating control, including how they invest on behalf of clients, so they can grow even more with our support. If an RIA does decide to sell to us, they need to understand that once they receive money for the sale, they become shareholders in Hightower and stakeholders in our joint future.

In the past 15-20 years, our industry has been characterized by significant movement, including advisors leaving wirehouses for independent broker-dealers or switching platforms. In fact, Hightower got its start as a service platform for wirehouse liftouts. Five years ago, however, we intentionally shifted to an RIA acquisition approach—an owned model—because we believe it offers clients stable, consistent talent and a higher level of service. 

We want all our clients to know that they, their children and grandchildren will always have access to sophisticated counsel from professionals who know them intimately. At the same time, advisors and service professionals must have growth incentives, a chance to advance their skills and careers, and a financial stake in something bigger—factors that are key to creating a culture of long-term institutional stability. 

Russ Alan Prince is the executive director of Private Wealth magazine and one of the leading authorities in the private wealth industry. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals. Connect with him on LinkedIn.com.

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