We can stop advisor industry churn: Orion CEO

New technologies and new ways of thinking are leading more and more advisors to look for a different way of doing business, says Natalie Wolfsen.

If there was one statistic showing the promise and challenge of running a registered investment advisory firm today, according to Orion CEO Natalie Wolfsen, it would be the fact that the number of RIAs appears to be stuck around 15,000.

Equally striking is that these firms have between 300,000 and 325,000 advisors. This number has also remained stable in recent years, despite many new people entering the sector each year and a “ton” of demand for financial planning services among retired baby boomers, members of Generation X in mid-career and wealth-seeking millennials.

This “balance” highlights how difficult it is for new advisors to get started and for new practices to establish themselves long-term in an increasingly consolidated and competitive RIA environment, Wolfsen recently told ThinkAdvisor.

Despite the arrival of impressive talent and sky-high demand for advice, running an independent RIA just doesn’t get any easier.

“Churn at the lower end of the industry remains a significant challenge,” Wolfsen said.

Part of the high failure rate of today’s firms may be related to the fact that many new RIAs are created by people more interested in financial planning than commission-based brokerage work. These individuals bring key skills to the industry, Wolfsen said, but they may also find themselves struggling with the pressures of scale that are a reality for RIAs today.

“I think some of the breakaways that we’re seeing or the brand new advisors don’t always have the entrepreneurial experience that you might expect,” Wolfsen said. “They’re coming into the RIA world from a different industry, or a different part of the financial services world – not from wire agencies. I think we can do a lot to help them be more successful.

Also worrying: Estimates from research firm Cerulli Associates and others suggest the industry could lose as much as 30% of its workforce over the next decade, simply due to advisor retirements.

“What this all means in practice is that a lot of new business models are emerging and seeking to attract assets and advisors,” Wolfsen said. “It also means that consolidation is here to stay, but I also believe that smaller community councilors will always have a role to play. We want to support them all.

More open to outsourcing

“The good news here is that technology and solution providers, like us here at Orion, are working on this problem every day,” Wolfsen said. “We are here to help combat churn. »

According to Wolfsen, advisors willing to rely on technology partners and home-based investment management resources can recoup 10 to 15 hours per week. This time can then be reinvested in deepening relationships with existing clients and growing the business organically, as well as establishing a better work-life balance early in the process.

“What we find is that the amount of time you save depends on the degree to which you want to invest in workflow efficiency,” Wolefsen said. “Complete outsourcing of investment management is particularly effective. »

Investors today demand much more from their advisors, Wolfsen said, in part because they benefit from incredible access to information and incredibly easy technology to use in every other aspect of their lives. They are used to having a wealth of information in real time and being able to make decisions and changes instantly.

“Advisors are being asked to provide their services through new channels and in new ways, and they are also being asked to provide more services,” Wolfsen said. “It’s not just about investment advice, but also about financial planning, retirement planning, trust and estate management, taxation and much more. They are expected to be able to bring it all together into a single, actionable financial picture.

“That’s where companies like Orion come in,” she added. “We can be their technology extension and manage the R&D and development work so they can focus on being great advisors and connecting with customers.”

Navigating Consolidation

Asked about the likely pace of mergers and acquisitions between now and the end of the decade, Wolfsen said the trend of rapid mergers and acquisitions is here to stay, and that it will have an effect on people’s decisions about where where they want to work and “what type of advisor they want to be.”

The headline-grabbing deals remain in the broad end of the market, Wolfsen said, with impressive wirehouse teams and the largest independent RIAs completing multibillion-dollar deals. But activity has also shifted to smaller advisors, and those advisors are either grouped together or affiliated with each other.

“Investor needs are changing, the industry is consolidating, and many of the founders of these small RIAs are themselves approaching or even surpassing the traditional retirement age,” Wolfsen said. “It’s very dynamic and it’s a great time to help financial advisors.”

Consolidation itself is unlikely to drive people away from the industry, Wolfsen said, but it could change the typical path of someone who ends up working for an RIA.

“As the industry grows, it becomes increasingly difficult to compete on the basis of service,” Wolfsen said. “I think it will become rarer to see people go it alone and start an RIA from scratch. Most likely, they will affiliate or rely on third-party providers to do the heavy lifting. This means that aggregators will continue to have a vibrant pool of advisors to recruit.

Pictured: Natalie Wolfsen