Financial Advisor IQ – Top Risks Faced By Solo-Advisor Practices

May 2015

Greg Franks is managing partner and president of Snowden Lane Partners.

Top Risks Faced By Solo-Advisor Practices

Despite the attention given to the fiduciary standard and robo-advisors, there remains another trend that has not been as widely covered but is changing wealth management: the demise of sole-practitioner advisors.
The catalysts for their demise have slowly built up over the last 30 years and did not happen overnight, but for a variety of reasons solo practitioners have been falling out of favor for some time now. As a result, those who remain are putting themselves and their clients at several major risks. Below are some of the main challenges that will further exacerbate the downward trajectory of this business model.

  • Difficulty in meeting the needs of clients. In the 1980s, when the advisor community started to truly take shape, the universe of investable products focused mostly on stocks, bonds and a few mutual funds. Advisors often found this to be a manageable level of products to offer clients. Today’s high-net-worth investors, though, require a much more complex level of financial services such as tax planning, estate planning and philanthropic advice. Those services are too much for one person to offer, as clients are increasingly demanding a full team of advisors to meet these multi-layered needs. By not evolving their business at the same pace that clients’ needs have evolved, solo advisors are putting themselves at a disadvantage on several fronts.
  • Potential limits on growth. Not all advisors want to establish a large firm. But for those who do, being a one-person shop will hinder their potential. There are only so many hours in a day, and advisors can only realistically serve so many clients. Once they hit that magic number, their growth stops. As a result, they are limiting their success by not embracing a team-based approach — especially as other growing firms surpass them.
  • Enhanced risk. If an advisor gets sick or can’t work for whatever reason, their practice can collapse overnight — virtually wiping out years of hard work and blood, sweat and tears. This is far too risky a proposition for independent advisors and puts clients at risk too, as the advisor won’t be there to help them.
  • Diversity of viewpoints. The old phrase “Two heads are better than one” is extremely applicable in the financial advisory business. Advisors benefit from having a team of colleagues to bounce ideas off and learn from. In some cases, veteran advisors can learn about new technology trends from a younger employee; in other scenarios, male advisors can gain insight from a female colleague that they can put to use for female clients. Additionally, by having a more diversified team, advisors can make their practice more attractive to a wider variety of investors — including their client’s spouse and children, as well as younger clients who are more tech savvy and require a different level of service.

A team-based approach isn’t a good fit for every advisor, and there are many scenarios where being a solo practitioner makes sense for an advisor and her clients. But for advisors looking to grow their business, embracing a team-based approach can add significant value and put them in a better position to strengthen their relationships with current clients while helping attract new ones.

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