After coronavirus: What’s next for financial advisors
As Yogi Berra famously said, “It’s déjà vu all over again.”
Once the stock market and the economy adjusts to a post-coronavirus world, the demand for successful financial advisors will intensify much as it did in 2009/10. I’m hearing the same enthusiasm and commitment to recruiting quality advisors from a broad array of wirehouse, regional and independent firms. Back in 2009, wirehouse recruiting deals held up; most firms viewed the downturn as an incredible recruiting opportunity.
Many advisors will make moves for some for the reasons that spurred them in 2009 — a search for a cash cushion.
Others who’ve been working at home during the coronavirus shutdown may start thinking about going independent for a variety of reasons. Maybe they really don’t need the commute to that fancy branch office after all. Plus, nailing down a 60% to 65% net payout and having more control over the ultimate sale price of their practice could be even more alluring than it was pre-pandemic.
Here is what else financial advisors can anticipate:
Post-meltdown is a good time to prospect — and secure client relationships
In bear markets, many customer accounts change hands. Clients who feel that their advisor didn’t monitor their portfolio carefully enough or communicate with ample frequency may look for a new advisor. Some investors will change advisors simply because they’ve had a bad experience in the market and want a fresh start. Many investors whose portfolios have been hammered are very open to a second opinion from another advisor.
This means that right now is a time of unusual prospecting opportunities for advisors.
Advisors will of course have to shore up their own flanks by ensuring that their own clients feel well taken care of and are going to be loyal to the home team.
Brokerage firm profitability will be squeezed
Moody’s has already downgraded or revised its ratings for three major independent IBDs: Advisor Group, Cetera and LPL Financial. Could the wirehouses be next? The downgrades translate into higher financing costs. The low interest rate environment will continue to make it harder for brokerages to make money.
This could translate into more frugal support for advisors at the branch and home office level. Independent broker-dealers may start to review their sacrosanct 90% payouts and pare back the payouts of smaller producers. Larger and more well-capitalized IBDs will become favored destinations for independent advisors. Independent firms owned by private equity firms who are servicing massive levels of debt will face greater scrutiny from prospective recruits.
The way some advisors do business will shift
Lots of fee-based accounts may take a beating. Unless the market rebounds quickly, clients who are paying quarterly fees for SMA and similar accounts may want to shift some assets into a commission-based format.
There will be more practices for sale
Plunging markets are likely to make prospective buyers pause and lower their valuations. It’s likely that in volatile markets, buyers will prefer a deal to be less up-front and more back-end loaded.
Nonetheless, many advisors who are close to retirement will head for the exits.
And the number of advisors will shrink. Cerulli Associates’ research in 2019 already predicted that one-third of all advisors will leave the business in the next ten years. This will make advisors staying in the business more valuable.
It’s a good time to seek out older advisors and to look for opportunities to acquire their practices.