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Managing Daily Ops Tops Elite BD Challenges

By Rita Raagas De Ramos March 1, 2017

Business operations are significantly more challenging than fund selection or even gaining prospects' trust for this year’s batch of the Financial Times 400 Top Financial Advisors, new research indicates.

When FA-IQ sister publication Ignites Research asked these elite broker-dealers to identify their toughest challenges, the top three challenges were managing day-to-day operations (cited by 48%), meeting client demands/servicing client needs (41%), and ensuring technological tools are up-to-date and efficient (34%).

Crafting and updating business plans, fund/manager selection, and gaining the trust of prospects were apparently less difficult for these advisors, with only 18%, 15% and 9% respectively citing them as challenges.

Broker dealers who make it to the elite FT 400 list are assessed annually by Ignites Research based on six criteria: total assets, asset growth rates, years of experience, compliance records, industry certifications and online accessibility.

Deborah Stavis, the Houston-based CEO at broker-dealer Stavis & Cohen Financial with around $450 million under management, says dealing with compliance issues has a lot to do with operational challenges as well as client servicing.

“We are at a day and age when people want blogs, they want education on demand, they want answers on demand,” says the FT 400 advisor. “But any piece of information that goes to more than one person is deemed to be advertising, so it all needs to go through compliance.”

Stavis believes compliance checks are important but wishes they could be expedited when a client’s information demand is immediate or when market circumstances call for timely sharing of information.

“We as an industry need to find ways to deal with compliance requirements more efficiently so that these requirements aren’t obstacles to our day-to-day operations and dealings with clients,” she says. To illustrate her point, she says doctors aren’t required to undergo compliance checks before recommending a treatment plan to a patient.

Perhaps continuing education on ethics undertaken by CFP-accredited advisors could serve as a stamp of approval that they are acting responsibly when sharing information with clients, she suggests.

“Investors make emotional decisions. Our job is to guide them, answer their questions, and address their fears.”

Dealing with the impact of the Department of Labor’s planned fiduciary rule has been both an operational and technological challenge for broker-dealers.

The DOL rule requires retirement account advisors to act as fiduciaries – to put their clients’ best interests before their own – by April 10. Broker-dealers are currently held to a suitability standard – which requires investment advice merely be suitable for the client – while RIAs are already held to a fiduciary standard.

Deborah Stavis

But the DOL rule is now in limbo, pending U.S. President Donald Trump’s directive that the DOL propose a new rule rescinding or revising the fiduciary rule if it concludes, following review, that the rule harms investors, results in dislocations or disruptions in the retirement services industry, or is likely to increase litigation for advisors and costs for investors.

Regardless of the fate of the DOL rule, some lawyers and analysts argue that reversing its impact on the retirement market would be hard, given there is already momentum toward a fiduciary standard.

Kelley Byrnes, a New York-based wealth management analyst at Celent, expects to see more vendors and solutions focused on technology that will help advisors comply with the DOL rule. More advanced CRM systems, product shelf development guides, billing solutions and portfolio optimization tools are examples of technology solutions needed to support DOL compliance, she says.

She says many advisors were already planning to upgrade or enhance their technology, and the DOL rule simply accelerated the process.

A Fidelity Investments study published in 2015 identified a “strong” link between the use of technology and advisor success. Fidelity noted at the time that more technologically-active advisors had nearly 40% more in client assets, attracted more Gen X and Millennial investors - clients born from 1965 to 1993, the firm says – and had a wider geographic reach compared with other advisors.

That study was based on a survey of 933 advisors whose clients were mainly individuals. The advisors managed a minimum of $10 million in individual or household investable assets. The survey was conducted in September and October 2014.

Only 30% of the surveyed advisors took advantage of a full range of technologies – from prospecting through client service and operations – to strategically grow their business, according to the report.

There are advisors who have been in the business for so long that they feel they don’t need to adapt to new technology, particularly since their clients are also not technologically savvy.

Pete Mahurin, a Bowling Green, Ky.-based advisor at broker-dealer Hilliard Lyons with around $38 billion under management, says his firm has kept up with technological advances, but he has stuck to his old ways of meeting with clients and prospects sans any gadgets or tools. He says his clients – many of whom have been with him since his early years as an advisor – and prospects prefer talking through financial planning and investments.

Eighty-five (21%) of this year’s FT 400 advisors are 60 years or older, including Mahurin, who started as an advisor at Hilliard Lyons in 1968 and now manages around $1.3 billion in client assets. Only 42% of the advisors in this age group identify the need to ensure that technological tools are up-to-date and efficient as a critical challenge in their practice.

The Ignites Research survey was conducted from October to December 2016.