3 Practice Management Trends to Watch in 2021

As 2021 begins, many advisory firm leaders hope that the new year will bring greater opportunities to grow their firms. Of course, there’s nothing magical about a new year — the only thing that makes changes possible is hard work and other steps taken by leaders with the vision for how to improve their client service and businesses.

The trends we highlight for our independent advisor clients are based on the work we see firms doing that creates real change and growth. All firms may not have the same growth outcome, but understanding certain trends should help them move in the right direction.

Here are the three key trends I expect to see either develop or accelerate in the wealth management industry in 2021:

1. The Rise of Micro-Technology

We’re already seeing a massive infusion of micro-technology in the industry. These are small-scale technologies that solve a specific problem.

As more tech companies enter the marketplace with mini-solutions that advisory firms need, we’ll likely see more M&A activity that pulls these pieces together to better serve advisors.

As in years past, the implementation of technology today is about the integration of advisor systems. For advisors to fully realize the most efficiency gains, however, they need to stop believing in an all-in-one solution.

Instead, they should seek out solutions for specific client needs and for service specialties they offer clients, like retirement or tax efficiency. By doing so, they can find the best and most efficient solution to better service clients.

As advisors have grown dissatisfied with all-in-one offerings, they’ve also set out to build their own solutions. What used to cost millions to develop, now costs much less, making it easier and more accessible for the average firm to create its own technology based on proprietary client experience (CX) and digital client experience (DCX).

Firms investing in the creation of their own technology are winning on both valuations and client growth. Though not all advisory firms can afford to develop their own all-in-one solution platforms, many can afford to build micro-technologies to service their clients in unique ways based on their specialties.

2. The Rise of the Independent Breakaway Service Advisor

For many years in the independent advisory industry, there’s been talk about the growth of breakaway brokers from the traditional wirehouse firms.

However, few are talking about the other side of the breakaway equation. As M&A activity increases, firm valuations rise and independent firms get bigger, there are more opportunities for service advisors working in those firms to start their own companies. They are already fiduciaries working at RIAs. To step out on their own means they’ll get to build wealth with their own client bases.

Many larger firms have been able to mitigate the effects of losing talented service advisors by focusing on human capital programs, culture development and partnership programs.

But with rapidly increasing firm valuations and M&A activity, a firm leader can go only so far in building human capital programs and partnership structures that please every advisor in the firm.

As a result, we’re beginning to see a significant movement of talented advisors out of the large RIAs, so they can start their own firms and/or find smaller firms to work with where they can afford partnership purchases.

3. The Development of Standby Brands

The pool of wealthy clients is decreasing quite significantly amidst firm consolidation. As a small number of firms get larger in size, wealthy clients increasingly are choosing from a limited number of independent advisory firms that can serve all their needs.

The majority of RIA firms, which aren’t billion-dollar outfits, need to watch for the client of the future and understand what types of clients they’re trying to attract.

The best way to attract more wealthy clients is to better serve existing clients. This is especially true as wealthy clients get harder to obtain. Firms serving this clientele can attract wealthier clients through referral programs for their current client base.

Knowing this, advisory firms are beginning to develop programs that serve clients of all wealth levels. In other words, they’re asking: If wealthy clients are getting harder to obtain, what’s the next segment of clients who can continue to help firms grow?

As a result, we’re seeing many “wealth management only” firms begin to reinvest and reposition themselves to pursue and serve mass affluent clients — those investors who generally have between $500,000 to $2.5 million in investable assets at retirement.

Unfortunately, most wealth management firms have developed with a mindset to serve those with a high net worth. That service model doesn’t scale for the mass affluent. Thus, firms have to create a new way of doing business and a CX for a different segment of clients to remain profitable and keep clients happy.

This movement will necessitate a “standby” brand with a CX that is mostly digital and technology supported and that doesn’t require as much hand-holding or person-to-person interactions as the traditional service model for wealthy clients.

This trend will challenge many advisors in the future. However, there will be a rapid evolution and development of service models to address the mass affluent marketplace.

Advisors who started down this path three or four years ago already are ahead in the race to capture more market share. Now is the time for the rest of the industry to catch up.

The Trend Rate of Change

Some of these trends started before the COVID-19 pandemic took hold. But the digital revolution — people working anywhere and clients finding advisors everywhere — caused by the crisis has sped up their development.

We don’t know how fast this revolution will spread within the wealth management industry, but the rate of change does seem to be moving faster than before.

Will that rate of change continue at its breakneck pace? If advisors and firms are prepared to embrace the change they want to see in the industry, it will. How much that attitude will permeate the entire industry remains to be seen.