Tom started his career in the mid 90’s with a large insurance company focused on the 403(b) market targeting K-12 teachers. He received great training and as he became more experienced, he evolved out of the TSA market and began using fee based asset management accounts for affluent clients. Today he manages nearly $100 mill in AUM, yet he remains affiliated as an IAR with the insurance firm B/D he started with. At one time when he sold only the proprietary products of his firm, the relationship worked. But today, not only does he not recommend their products, the insurance company seems to have been cutting expenses and benefits for over a decade to a point where there is really no reason for staying. All the relationships he had with the firm which was the cultural glue of the company had been downsized and let go. So why does he stay? Fear of the unknown.
Melanie got her career start with a major wirehouse but in short order, became disenfranchised with a culture that hatched the “Boom Boom Room”, so she moved her business to a small B/D. Her practice has grown, but the small B/D has not. With just over 200 advisors at the B/D, she has real concerns after reading about multiple like sized firms unable to compete and simply closing their doors. But with the business moving so quickly, she is unsure about what to do. She has a fear of the unknown.
Jim broke into the business 20 years ago advising small firms and individuals on their retirement plans. The B/D he was with seemed to get in the way more than help. About 10 years ago, he made the decision to drop his FINRA license and move his practice to fee only. Today he is a solo RIA practitioner with $90 mill in AUM with no succession plan in place despite the fact that he wants to retire soon. He knows he has to adjust his practice with the SEC and State registration changes taking place. And he has read where the costs of compliance going forward will increase in multiples, a cost he cannot absorb and remain in business. Yet, he remains a solo practitioner and is unsure what to do. Why? Fear of the unknown.
I talk to quite a few practitioners in the business like Tom, Melanie and Jim. There seems to be a common theme among most of them. They are part of a platform or model that is being dramatically impacted by the economic, regulatory and cultural shifts taking place in the business. They are unsettled and concerned and will generally acknowledge that their practice model and/or firm affiliation will change at some point in the future. But they keep on keeping on. They don’t know what else to do. And that’s understandable.
As the business consolidates and tries to anticipate Dodd-Frank, there are but a handful of firms with a strategic vision investing in growth for the future in a surviving business model. Most are cutting valuable personnel, eliminating support and basically treading water in hopes that nothing changes. They tell themselves, “the threat about this fiduciary thing is going to go away, right?” and “They’re not really serious about an SRO for RIA’s, are they?”, “The shift from commissions to fees is just a fad and soon everything will be back to normal”. “If only things just stayed the same”…they keep telling themselves.
Fairly soon, doing nothing will not be an option. It will come down to this: change or be changed. It’s time we stop fearing the unknown, do our homework and make proactive moves that position our practices to be in a position to take advantage of the largest generational transfer of wealth our country has ever seen. It’s time to turn the fear of the unknown into the fear of the known. If you find yourself stuck in an outdated model that has no strategic plan for the future, fear it! There was a time when I told advisors thinking about moving their business model that “the devil you know is often better than the one you don’t”. Not anymore. 2012 is the year where a great many unknowns will become known and it will be more clear who the survivors will be. I also think it will be a year where the greatest amount of movement from one model and/or firm to another takes place. Study those unknowns and you’ll soon find that what you now know is even scarier.
“Why do people persist in a dissatisfying relationship, unwilling either to work toward solutions or end it and move on? It's because they know changing will lead to the unknown, and most people believe that the unknown will be much more painful than what they're already experiencing.” -Tony Robbins
“People don’t want their lives fixed. Nobody wants their problems solved. Their dramas. Their distractions. Their stories resolved. Their messes cleaned up. Because what would they have left? Just the big scary unknown.” -Chuck Palahniuk
People have a hard time letting go of their suffering. Out of fear of the unknown, they prefer suffering that is familiar"