Unlocking Real Value Blog

A Growing Threat To Financial Advisors

The E*Trade baby commercials might not be so funny after I tell you about the latest comments from Cerulli Associates on the growing threat of direct providers such as Fidelity, Schwab, E*Trade and other similar firms.

The offerings of these firms in areas such as asset allocation, managed accounts programs and access to financial planners are today, according to Cerulli, “robust enough to mimic traditional financial advisor models.” Cerulli believes that the most at-risk clients are those with between $100,000 and $ 2 million to invest, which seems reasonable to me.

Many advisors might not want a lot of clients at the lower end of this range, but I bet most would not want to believe that their $2 million client relationships are at risk. Now, while a segment of those that go direct probably includes people that don’t want to ever pay a fee, and thus don’t represent a threat to many advisors – don’t get too comfortable yet.

Another Cerulli reports points out a scary dichotomy – while only 20% of advisors think that their clients have other advisors and/or direct accounts, 75% of clients surveyed said that they owned direct accounts. According to Cerulli, “Clients think of their direct accounts as a place to try their own investing ideas or as an emergency fund, which is segregated from their main pool of assets.”

This last point may be a saving grace for many advisors. However, given that I have reported before in other stories that many wealthy clients have more than one advisor, and given the fact that many clients do not seem to be forthcoming in admitting these relationships, advisors would be wise to focus more on this threat than they would be to rest easy.

My recommendation is to view direct providers as as large of a threat as other competitors and to make sure to continually point out to clients your competitive advantages vis-a-vis them, as you do everyone else. Ask the question of whether they have such accounts; offer to add these accounts into your performance analyses (as you hopefully do for all of their outside accounts); demonstrate to them why your fee is more than justified and you deserve to be their “Alpha” advisor.

Your brand should be able to set you apart, as should your client experience. But take the threat seriously so that you can still laugh at those commercials!

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