• Al Townsend

Triple Threat: Wisdom Contribution

Updated: Dec 17, 2018

We have all grown up hearing that the one constant in life is change. The adage is true but what is most striking is how it is impacting the advisor’s ability to stay in business. For those of us that have been in the investment business for several decades, it is utterly mind boggling, not only how fast things are changing but also the number of things that are changing in the industry. 




There is a triple threat facing every advisor today: the investment markets, the regulators, and technology. Being prepared for the change taking place in each of these three areas will ultimately mean the difference between success and failure for an advisor. And when I say failure, I mean the threat of putting the advisor out of business, loss of personal wealth, or even going to jail. Success on the other hand will mean developing a more efficient, scalable, and predictable business that meets the needs and demands of the advisor’s clients for years to come.


Threat number 1 | The Investment Markets

The big question today, especially after experiencing a great bull market, is “Are you ready for the next bear?” It’s coming. Don’t know when. Don’t know what the catalyst will be, but when it does come, it’s not going to be pretty. It may even make the financial crisis of 2008 look like a small blip on the screen.


Here are a few things to consider:

  • Markets have been a really nice bull run for the past 6 years.

  • Interest rates have been artificially held at historically low levels for over 5 years.

  • Political and economic uncertainty exists in most of the countries around the world.

  • The size of the derivatives market is greater than the entire world’s GDP.

Remember what caused the financial crisis?

  • Too many clients, advisors, and economists think that everything is good and the bull will continue. Big signal here if you are a contrarian.,

  • etc., etc…

Not to be too negative but, it’s like standing in a sea of gasoline and we are just waiting for someone to strike a match.


Opportunity or threat?


It’s an opportunity for advisors that took the past six years to clean up their investment business and developed an investment strategy that focuses on achieving reasonable outcomes that match client goals while minimizing downside risk. The new reality is that markets will continue to be volatile and an advisor’s value will be measured on how well they manage risk not maximize yield/return. After all, the stage is set for another financial crisis, technology bust, gas/oil prices, wars/conflicts, and of course the ever present stupid politicians and the decisions they are prone to make. Hopefully you have prepared for the bear.


It’s a threat if you have given in to your clients’ demands for better returns, just like the ones they have seen on the news. And they want higher yields because they’re pissed off because rates are still painfully low and they don’t want to change their standard of spending.

Then again, maybe you feel a bit optimistic or think that another 2008 is unlikely to happen any time soon. After all, it was considered a “black swan” event. Try to remember, behavioral finance is alive and well and does not just affect investors’ decisions; advisors are just as prone to the same emotional biases.


So here’s the bottom line - if you have become a bit too euphoric, find yourself giving in to your clients’ demands to take on more risk to get higher returns or if you still haven’t stress tested your investment strategies, be afraid, be very afraid.


Threat Number 2 | Compliance and the Regulators

The suitability and fiduciary requirements for advisors to do business with clients will continue to increase for the benefit and protection of the average investor. Mandatory disclosure of fees in 2015, increased burden to prove that you are working in the client’s best interest, and the risk that a client will take legal action just because they lost money in an investment are all part of the changing environment that every advisor will have to deal with.

Opportunity or threat?


It’s an opportunity if you have all of the following:

  • A clear, compelling value proposition for your investment business and how you service client relationships

  • Cleaned up all the miscellaneous investment holdings that have accumulated in your book over the years

  • A solid due diligence process for screening and selecting investments and can prove they are suitable for each client that holds them in their portfolio

  • Good service and communication strategy for each client segment you work with.


If you have done all these things, congratulations as you are in the top 5% of all advisors. So don’t be too upset if you missed one or two.


There is a clear and present threat if you have not done all these things and you don’t plan to deal with them any time soon. Yep, one way or the other, any one of these, if not addressed immediately, will either cause you to lose clients, cost you money, or possibly even give you a chance to see what the inside of a correctional facility looks like.


If a threat exists in this area, take full advantage and try to leverage every resource available to you. Assess gaps in your business and identify and implement best practices that have already been developed by top advisors. You do not have to recreate the wheel here. Take advantage of your firm’s resources, work with a practice management coach, or read the plethora of articles that are in many of the trade journals, any of which can help guide you in your quest to run a clean and compliant business.


Threat Number 3 | Technology

Advice, trading, access to research, and being able to view an account in real time is now available through your smart phone. Investors don’t need to talk to a human being anymore. As a matter of fact, millennials really don’t want to talk to anybody and prefer the comfort of what the new technology offers them. Even the old fart baby boomers are using all this new-fangled stuff to keep an eye on their advisor to make sure they are not doing anything bad to them.


And if this was not enough to get your attention, there is a real game changer that is making pretty strong inroads to the investment business - the Robo Advisor.

Wow! How the business has changed. There was a time when an advisor could manage a client portfolio on a spreadsheet (paper-based), clients had to come to them to get information on a stock or bond, commissions were not really negotiable (8% on a typical mutual fund), and a client would have to go through a broker to buy or sell any stock or bond.

Opportunity or Threat?


This depends on which side of the technology learning curve you are on. If you are on the pro-technology side of the fence and have started to implement and use the tools that are available, and more importantly, are aligned to the client profile that your want your practice to focus on, then it is an opportunity because you are ahead of most of the other advisors.


Technology provides a lot of benefits:

  • Greater efficiency 

  • Increased/improved channels of communication with clientsScalability of business

  • Ability to compete with tech savvy competitors

  • Stay profitable as margins get smaller and smaller.


This will be a big threat to your business if you have not heard of or studied what the Robo Advisor platform can do. This is the next game changer for our industry. Schwab in the U.S. is launching a fully automated service (backed up by real people) that can do virtually everything from planning to investment management, online, for free. Not familiar with this new competitor? I suggest you drop everything and turn on your computer and do a Google search.


Keep in mind that the boomer generation is getting older and the new wealth will be, and to a certain degree, is already controlled by the younger generation. They would rather text than talk. The tech generation wants immediate real time access to information and using technology was something they became comfortable with before age 9. Today it is second nature for them.


If you are not already working on assessing and re-thinking your business, you need to. The top firms and advisors recognize that each one of these threats can have a devastating effect on their business. Recently, lower oil prices sent a ripple effect through the markets around the world and its long-term effect is still not clear. CRM2 will force everyone to justify their value with clients. Schwab is offering a full suite of investment services (planning, portfolio design, trade execution and online reporting) for free.


The triple threat described here is a far greater risk to an advisor’s business than any of the events we have seen in the past. And just so you don’t get too comfortable, even if you are moving in the right direction, the rate of change and the new potential threats to your business are more likely to accelerate going forward. This is the real new normal; so get ready, the fun is just beginning.


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