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The Pathway to Obsolescence: The AUM Business Model for Advisors and Why It Must Change

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Perfecting a decreasing margin business model is insane…and yet this is happening all over the world today in financial advisor offices.

Years ago technology created the ability for independent financial advisors to come into existence and today that same technology will threaten the survival of many of the same.

Without getting too granular, tech is why you exist (independent financial advisors) and it is why you will survive or thrive going forward.  When the big banks/wirehouses start migrating to your business model, as they have for the past few years, you might ask yourself if that is good or bad (I have written about this in the past on LinkedIn), it is time to work on the next model now!

Here is the deal:  AUM as you currently experience it is done.  It fails miserably when examined transparently by your customer.  You are going to be forced, by technology, to justify your pay on an hourly basis and you will fail when customers realize what you are actually earning.  Understand this, investment performance has become seriously commoditized and your ability to differentiate based upon that as a value proposition is decreasing on a daily basis as the difference between robo performance and your industry average is becoming smaller and smaller.

Do yourself a massive favor and seek to eliminate the following words from you and your company’s communications: Delivering Value. The day’s of you being in charge of how you deliver value are pretty much gone. Now, the real professional (in any industry) is 100% focused on how their customer perceives value and how that perception is being affected by the way people buy today.

Hint: Take a long hard look at how much time your clients spend on their smartphones and then extrapolate that to how they make decisions in general!

You are not going to be able to ‘deliver value’ to your clients based upon investment performance unless you actually are. Only the truly ‘active’ managers will compete successfully based solely upon performance since they are actually managing and, most importantly, their clients will be able to see and understand the value.  I see a bright future for the CFA’s and their brothers and sisters that are purely managing money. Not so much for those of you that call rebalancing and managing mutual fund portfolio’s investment management.

I also see a very bright future for those advisors that have the courage to develop a new business model.  One that seeks to compete effectively based upon price and service on the asset management side with robo advisors and then adds the high touch value of another business into theirs:  coaching.

The new advisory firm will manage two different, but sympathetic and synergistic, businesses within their business:  Efficient and cost effective AUM and Empathetic and sincere financial coaching. This is going to be difficult and in the end amazingly rewarding to the right type advisor.

You are going to need to seek complexity in potential and current clients and, most of all, you will need know how to run a coaching business profitably.

Related: Hope for Advisors: Old School + New School = Referral Success in the Digital World

Your business, at its most basic, has always depended upon the habits of your best clients (they save and follow your advice and as a result experience success).  Your future profit margins will be thankful when you develop the ability to not only justify your hourly rate for providing advice, but, develop the skills to enable significant performance improvement in your clients across all areas of their life.

This might sound terrifying, and believe me I was terrified as well when I saw this coming.  The good news is this: You can do it. The bad news, you haven’t learned how to run a high profit coaching business…yet.

There aren’t many resources for this new paradigm/business model out there that are independent (most of the articles are from vendors that want to capture your business), but, that doesn’t mean you are alone.  Start reading now about coaching, sales (yes sales) and the process by which people improve their decision making (habits). Examine yourself and get defined what your values and your companies values are and start explicitly using those values to make better decisions.

Our firm specializes in Independent Financial Advisors just like you. You can do this on your own, but, you will be in essence developing a brand new business. Or, you can begin a relationship with a coaching company that understands your industry, understands intimately your current business model and that will demand your best from you.

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