4 practice management tips to prepare your firm for the future

September 19, 2023 6:47 PM

To successfully bring your firm into the next generation, it takes a mix of the right people, the right technology and the right approach.

At Future Proof 2023, two industry veterans hit the beach to give growth-minded advisors soaking up the California sun some practice management tips on enduring the increasing demands of the industry.

Moderated by Wealth Solutions Report Managing Editor Chris Latham, the conversation between Vanguard Investment Advisory Research Center Head Francis Kinniry and Brie Williams, head of practice management for State Street Global Advisors SPDR, touched on everything from recruiting new talent to the impact AI will have on advisor workflows.

Scroll down to see what Kinniry and Williams had to share at the one-of-a-kind wealth festival held last week in Huntington Beach, California.

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Keep a healthy mix of clients

Williams said when thinking of the demographic shift that is underway, continued growth and the health of your business means having a good mix of clients who are at different stages of their wealth story.

A firm should have some clients who are in the accumulation stage, and other clients who are in decumulation.

"So most businesses, the lion's share of their clients are baby boomers, an important market. They hold around two-thirds of the U.S. wealth today. But many of them, that group between the ages of 57 and 75, they're moving into retirement plans. Or they've already retired," she said. "And many of them have a second act even after they've officially retired, but they're entering that decumulation period."

She added that Gen Xers, a segment sometimes overlooked by multiple industries, is smaller while still controlling $46 trillion of the assets in the U.S. today.

"When we think about wealth transfer, they're inheriting the money first before the millennials which have sucked the oxygen out of the room in terms of interest and opportunities. They are certainly important for future growth, but they only have $13 trillion in their assets today," Williams said. "So segmentation becomes very important because you accept at face value you have to have a healthy mix so your business is resilient, no matter what happens in the markets."

Speaking about the overlooked, Williams highlighted the service gaps that continue to persist for women in America. In the U.S., household financial assets under women's control will increase from the current $10 trillion to as much as $30 trillion by 2030, according to a 2020 report by McKinsey.

"They're clearly the next market, but also understanding that they're the least advised, you have 55% of Gen X women without an advisor relationship," Williams said. "Recognizing that they're sandwiched between caring for children at home, and supporting older parents, they really need prioritization in order to maximize their worth."

Kinniry said as your firm works to serve new clients, your firm should be working to reflect its changing client base. It is a task that remains tall for an industry where women and people of color continue to be grossly underrepresented, but Kinniry believes technology is providing support in that effort.

"The time you would spend five years ago or 10 years ago was really (focused) on the numeric — investments, financial planning, tax-loss harvesting, tax alpha … a lot of that today has been able to be taken on by technology and or outsourced," he said. "You can outsource to ETF model portfolios. You can outsource direct indexing, which really frees up the advisor's time. We're seeing a pretty dramatic shift from competencies of maybe a financial planner or an investment manager, and more towards relationship management. And much more towards practice management because the tools today are there to help the advisor concentrate on the human capital.

"You have your tech stack, but at the top of the tech stack is the human capital stack."

Find the right people

Filling out that human stack starts with vision. Williams said to take the classic practice of asking where you want to be in the next three to five years, but tweak it to consider the kinds of people and personalities you need to achieve your goals.

Also make sure that your future takes their futures into consideration.

"Before you jump to hiring, you need to look at where the capacity issue is … because you want to make sure that (you have a plan) when you bring on a new person and you're investing in a young financial advisor. Or financial planner. Or wealth strategist or investment strategist. Whatever the position is, you need that position. You need those skills," she said. "If there's no future for that individual to grow with the practice, you're not gonna be able to keep them in the seat."

Williams said the accountability and the intentionality in how new people are trained is imperative, but wearing the manager hat is new for many advisory practices.

"So you have to think about what the plan is for someone's growth and development over the years," she said. "Career pathing could include changing seats or a different role, especially if someone has high potential talent. Maybe they've capped out in the seat that they're sitting in, but they can potentially perform by moving over to the left or to the right."

She also offered up a scouting tip that she urged listeners to use at both Future Proof and other events they go to.

"If you run into someone in the advice industry that really impresses you, write their name down. Then when you have the need to fill a human capital opportunity on your team, you have a cultivated shortlist of high potential talent that you have hand picked," she said. "Send the job description to them. Even if they're not interested in the role at that time, I bet you they know someone else that might be a good fit."

Keep your friends close, and your tech closer

Kinniry said the technology conversation in wealth management is a complicated one. One that includes both fear and excitement.

"Everyone is most fearful that technology is going to take my job or it's going to compress my margin. And we've been studying this for hundreds of years. And neither of those have happened," he said. "As technology has come 200 years ago, 150 years ago, and so on, it's led to job creation. And it's preserved margins. And so I think the important thing is not to fear it, but to adopt. And employ it as quickly as possible and continue to move up that value chain.

"Those that see it as a threat and may not embrace it are the ones who always get left behind."

With that championing of technology, Williams said she knows that AI has dominated the conversation as of late. No matter what your personal feelings may be on AI, she believes that weaving it into your practice is essential to achieve growth going forward.

"But you do need to understand what the technology does really well that can replace the human, versus where you have to lean in hard to what the human excels at," she said. "So it's human plus bot."

Pick up the pace

Kinniry said there is a great deal of variation when it comes to technology integration across the industry. Some firms are bleeding edge, and some places haven't even begun to go off paper or eliminate the manual processes that still plague them.

He said that no matter where you are, kick it up a notch.

"If you're a small advisor, make sure that you're embracing technology and rapidly adopting it as quickly as you can. Because you would imagine that the bigger, larger competitors in your field are doing just that," Kinniry said. "At some of the smaller shops, integration is not there. You could have 30 windows up on your desktop to try to get through your day. And that can be a big challenge. But the sooner you can try to clean that up and embrace the technology, the better, because the larger players are certainly doing (it)."

Williams added that firms should enjoy the process of figuring out what works. There are no magic-bullet solutions, but through trial and error, you can learn more about your own business while tapping into what makes you special.

Circling back to the fear Kinniry touched on, Williams said the industry has overcome much more overwhelming tech than gen AI and machine learning.

"Just think back to social media and how that was a scary innovation. And many rely on the crutch of 'Well, I can't do that yet because the regulation is not in place,'" Williams said. "I would argue you still have regulation over generative AI. But that shouldn't make you step back. Because you have to keep pace with what is evolving. How potentially can this integrate into the business's growth trajectory while regular regulation, which is closely watching this space, continues to run alongside us?"