There’s been a lot of talk in the industry about downward pressure on advisory fees. Competition has been growing rapidly in the financial advisor sector with the addition of lower-cost robo and hybrid advice services. But to date, most RIAs I’ve spoken with have yet to see pressure on their fees despite all the headlines.
The pressure advisors are feeling is the pressure to increase their range of services (e.g., estate planning, insurance, retirement income expertise). They realize that competing with robos purely on investment solutions is going to be difficult.
The chart below from our advisor’s alpha research shows how additional service offerings can help you deepen your client relationships while insulating your practice from pricing pressure and competition from digital advice offerings. We’re increasingly seeing advisors shift toward the right-hand circle by providing more behavioral coaching and customized services. Increasing your range of services can help differentiate your value proposition and increase the likelihood that you can maintain (or even in some cases increase) your fees.
Vanguard advisor’s alpha value stack
Steps you can take now
You don’t want to wake up one day and realize the market rate for the services you provide has dropped significantly. Even if you haven’t yet determined how best to expand the value you offer clients, there are steps you can take now in preparation to start lowering your cost to serve clients.
How do you do that? By introducing technology into your practice to improve the efficiency of your business. Technology allows you to focus more on such value-add services as business development and behavioral coaching. Every day, a new, interesting technology provider enters our industry. You have the opportunity to leverage the best technology to enhance your client service and improve your practice while keeping costs in check.
Technology is changing the labor market
Vanguard recently did a study on how jobs have changed. To put things in perspective, certain jobs now consist of up to 50% more advanced tasks than they did just 15 years ago. We expect the trend to accelerate—automation-proof tasks may occupy up to 80% of our time 10 years from now.
Change in occupational tasks
Source: Vanguard calculations, based on data from U.S. Department of Labor O*Net OnLine (2000–2016)
Likewise, a financial advisor’s role has changed enormously over this period, and we suspect that will only continue. The winners in the future will be those advisors who effectively manage their cost to serve clients, while maintaining or building an appropriate value proposition and being competitively priced. Not thinking about that today could prove costly tomorrow.