First Gen Silos and Next Gen Integration

There was a recent study released by Schwab about advisors turning independent. We all know the facts about RIA’s being the only financial services channel experiencing growth. But what struck me most about this study was the difference in perceptions between those advisors under age 40 and those over age 40. In this Investment Advisor article on the study, it says, “Younger advisors, in particular, show even more proclivity for independence, with 65% of those surveyed under the age of 40 finding the idea of becoming an RIA appealing, compared to 43% of those aged 40 and over”

Those older advisors grew up in a silo’d business. Elite Life producers over 55 years old generally sell life insurance only and don’t want to clutter their practice with securities or investment management. Investment advisors of all stripes (wirehouse, IBD, etc.) over age 55 are the same with their practices not wanting to get involved with insurance. And fee-only RIA’s want nothing to do with anything that generates a commission which basically cuts them out of the commission based world altogether. Why is this?; regulatory silo’s. It has frankly been too difficult to integrate these practices onto a single consolidated architecture due to FINRA, SEC and State Insurance Departments forcing each into their respective corners. So what has emerged is a fragmented set of models where one advisor has his/her BGA with “Brand X”, his/her B/D with “Brand Y” and his/her RIA clearing through “Brand Z”. None of them integrated or on the same platform.

Having recently completed reading the Steve Jobs book, it struck me how similar this fragmented financial services model resembled the open architecture of Microsoft and the PC where the software, hardware and internet services are not integrated. The user can choose from multiple suppliers which at first glance seems like an advantage. This as opposed to the Apple model of a closed and fully integrated architecture.  

For the longest time, I was a dedicated Microsoft user over the years buying Gateway, Dell, IBM and SONY hardware along the way. I disregarded the Apple products as foreign and different for a sub-culture user. But when I bought i-Pods for my now 15 year old triplets a few years back, I thought they were pretty cool and got one myself. Then came the i-Phone. At first I was suspect about it because I thought my blackberry keyboard was easier to use. But at the urging of my kids, I made the switch a couple years ago to the i-Phone and never looked back. Then as I was rewiring my home AV system, my tech guy suggested using Apple TV, so now I have my i-Tunes libraries, movies, pictures, home videos all integrated with the ability to play anything on any TV or speaker with a controls through an app on my i-Phone. And on business trips, I used to haul around a heavy laptop. Not anymore. Now I carry my trusty i-Pad which does all that I need on a trip. And I can get to all of my stuff anywhere, anytime through i-Cloud. Bottom line, I’m hooked on the closed Apple ecosystem and will not leave.  

Apple as a closed architecture could be perceptively at a disadvantage, but it allows for a consistently higher quality product and seamless user experience. I had thought the younger generation would object to closed systems, but apparently not. It appears that the early adopters of the current Apple architecture are the younger generation and the holdouts are generally more mature still holding onto their blackberry, PC and flip phones.  Could it be that the next generation of financial services platform is on a closed architecture where the RIA, B/D and BGA are seamlessly integrated? One client account form, one application, one place for client and advisor to see a consolidated view of the entire portfolio through front end single entry.

Just as the under 40 set is more open to a different practice model than their more mature peers, I also believe they will gravitate  away from the silo’s towards a fully integrated architecture enabled with high quality and state of the art technology.  And by fully integrated it is a given that proprietary products will be a thing of the past and I’m talking about open access to all products and services within this closed and integrated model. Those with retirement on the horizon won’t want to risk changing platforms just as I was resistant to get off the Microsoft Windows system and onto the Apple architecture. But I believe those who are still growing their practices will demand a better more fully integrated experience. With the likelihood that a new "harmonized" fiduciary standard gets enacted breaking down the barriers prior set by regulatory silos, true convergence and integration of the models may finally happen. It may not be here yet, but trust me, it’s coming soon.