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RIAs Find Ways to Adapt To Regulatory and Technology Changes

November 22, 2016

LPL Financial

At LPL’s ADVocate RIA Symposium this month, a singular theme was present throughout all facets of the business: Change management.

In times of big change, the firms most prepared can be the best partners. At LPL, we’re fostering a culture of innovation and execution.

- Rob Pettman, LPL Executive Vice President, Product Management

Regulatory changes and technology disruption are driving significant change in the industry overall. “Alone, each is significant enough to shift the industry,” said Matt Enyedi, executive vice president, National Consulting and Marketing within the Investment and Planning Solutions department at LPL. “Combined, we are in a unique time for this business in that we must manage through exponential change.”

During the symposium, about 100 of the top LPL RIAs gathered with the firm’s leaders and other industry experts discussed the change already underway for RIAs as the industry anticipates and prepares for impending changes. RIAs and advisors are evaluating their business structures to identify and implement ways to remain competitive. And RIAs are finding they need to scale their businesses to stay competitive and need to support individual advisors in their approach to client service and the value they provide.

And technology underlies it all. On one hand, technology can serve as a growth enhancer by enabling advisors to create efficiencies and scale in their businesses while also helping them to offer better client service and the type of engagement that more investors want. Yet it threatens price structures and an advisor’s value by creating alternatives to the traditional delivery of financial advice.

The Right Partner Makes All the Difference

“In times of big change, the firms most prepared can be the best partners,” said Rob Pettman, LPL executive vice president, Product Management. “At LPL, we’re fostering a culture of innovation and execution.” LPL has been underway creating solutions that will meet the changing environment and put LPL in a position of strength, he said, including offering a mutual fund only account, integration across LPL platforms, creating processes that can make transitions easy to execute and to comply, among many other efforts.

“The amount of work to be able to do this is significant. There are so many little facets of this business you have to think about and you have to have an army to process all of this. And once you’ve defined that, it’s tremendously expensive to implement. It’s not proportional. If you are small, it doesn’t cost you less. And that’s where LPL’s scale matters and where advisors will look to RIAs to leverage their scale as well.”

RIAs Need to Gain Efficiencies

Alex Goss, CFP and co-founder of GWM Advisors, said during an advisor panel at the conference that he recognized early on that his RIA wouldn’t be sustainable without scaling the practice. RIAs and advisors alike are in need of more staff and resources to manage necessary training, compliance and technology functions. Over the last two years since joining LPL’s hybrid platform, GWM has grown to more than 25 advisors. With more advisors, the firm can share costs for technology and resources to create business efficiencies and that also enables GWM to continue to invest in its practices as well as maintain profitability. Given his experience, he says the industry will see further consolidation in the RIA space as like-minded RIAs seek to reduce redundancies and continue to create greater efficiencies.

While one approach to create scale is to bring more advisors onto the platform, leveraging technology is another. “You have to build your back office to stay in business,” said Michael Kitces, partner and director of Research, Pinnacle Advisory Group, and publisher of industry blog, Nerd’s Eye View. “Technology makes us hyper-efficient.” It can be leveraged for aggregation, account opening, trading functions, to create a paperless office, provide on-demand delivery of information and much more. These solutions streamline operations and create bandwidth for advisors to do more than just investment management, which enables advisors to increase their value with clients. Technology has an additional upside of improving the client experience by keeping pace with the changing investor attitudes toward engagement and service models.

Technology can also create scale for individual advisor practices by extending their reach to more clients and markets. LPL’s Guided Wealth Portfolios, an advisor-enabled digital investment platform, is an example of a way to outsource a solution to scale up. The turnkey solution keeps the advisor central to the relationship, but provides automation and service in a more streamlined process. “As the demand for advisors increases but the population of advisors is decreasing, creating increased demand on advisors, GWP creates another piece in the portfolio for advisors to serve more clients, but enables them to do so efficiently,” said Enyedi.