U.S. households have far less overall wealth and far more skepticism toward the financial industry than they did five years ago, said Chip Roame, managing partner of Tiburon Strategic Advisors, before an audience of executives from broker-dealers, custodian providers, asset managers and technology companies gathered in San Francisco Tuesday.
“Consumers are $4 trillion poorer than they were in 2007,” Roame said, referring to the aggregate drop in U.S. household net worth.
At the same time, the scandals surfacing since the financial meltdown have soured consumer attitudes toward the financial services industry; its reputation is now worse than that of any other U.S. sector except for tobacco and government, he said.
The loss of wealth and heightened skepticism are driving more consumers to manage their own finances, which will in turn require new strategies from RIAs. Roame predicts they’ll need to focus more on marketing and offer broader financial planning services to clients, rather than merely providing investment advice, as the boomers transition into retirement.
“What do boomers do when they retire? They sell their business, downsize their house, and roll over their 401(k) into an IRA,” Roame reminded the audience at the Tiburon CEO Summit. With 10,000 boomers retiring every day, he said, "the liquidation of their assets is the biggest opportunity today, and it will be for the next 20 years.”
For advisors, the takeaways focused on marketing and customer service.
"If your aspiration as an advising firm is 'bigness,' it's all about marketing," said Roame. He pointed to the success of Edelman Financial Group, which has grown quickly, thanks to aggressive marketing and customer service that placed it at the top of Barron's annual ranking of independent advisors.
Roame also pointed to studies saying almost half of clients say they'd change financial service providers because of general levels of service.
Despite the challenges, one veteran investor who heard Roame’s keynote address was upbeat. “There is a lot of skepticism out there, but people won’t run from investment advice,” said Bill Harris, the CEO of Personal Capital Corp. and a former CEO of both Intuit and PayPal.
“The traditional asset management model has been a paternalistic one, with advisors patting the client on the head and saying, ‘let me handle it,’” Harris said. “That doesn’t fly anymore. Baby boomers want transparency and visibility, which means you’ve got to have data” to support investment management decisions.
What’s needed are new “hybrid solutions,” said Harris. “You need a combination of [customer] touches and technology.”