Financial advisors' rush to boost client services comes with these risks

Boosting services to better serve clients can be a smart move for financial advisors looking to expand their business — but such decisions may easily turn into blunders.

The risks of branching further into areas like tax, estate planning, insurance, business owner services or employer retirement plans may receive less attention than the compelling reasons for adding them into a more comprehensive relationship with the clients and growing the wealth management firm's revenue at the same time. Advisors could run into problems along the way if they don't have the necessary resources, credentials or time for their move toward any of the dozens of financial services related to wealth management, experts told Financial Planning.

For example, the technology executives and professional athletes working with San Ramon, California-based Synergy Financial Group have pushed the firm to evolve into what is effectively a family office, because the high net worth clients have seen their wealth climb "so substantially and so quickly that they've asked us for these services," according to founder Palash Islam. The firm's annual revenue has more than tripled over the past five years. However, it refers clients outside Synergy for tax and legal work while "helping to manage the process," he said.

"We're engaged in understanding who the client is and what they're looking for," Islam said. "We understand the client and we understand the methodology. We understand that the tax person is going to look at it only from a tax perspective and a legal person is going to look at it only from a legal perspective."

READ MORE: Taxes + wealth: 2 connected but still (for now) distinct fields are merging

Fierce competition

Advisors are trying to "guide a client through the entire life and wealth cycle" by emerging as "the last one standing" when the customer streamlines their financial accounts, according to Arthur Worthington, a senior business development director with custodian, asset management and technology firm SEI. In the past 10 years, the rise of technology, the commoditization of investment management toward lower fees and wider information available to consumers have "forced advisors to reevaluate their value proposition, services and fees," he said in an email.

"Many advisors are adding in-house resources or finding strong third-party providers to offer clients solutions that were previously outside of their planning scope, such as estate planning, trust services, risk management, tax advice, education planning, charitable gifting strategies and planning for business liquidity events," Worthington said. "Industry consolidation is driving many roll-up RIAs and broker-dealers to build in-house resources that offer at-scale specialization. This creates greater capacity and services for advisors on the front line, and doubles as popular advisor recruitment services."

Fewer than half of advisors, 48%, currently engage in "comprehensive planning advice," but that share will climb to 55% in 2026, according to a report last month by research and consulting firm Cerulli Associates. Other channels in the wealth management industry are aiming to catch up with the wirehouse advisors, who provide the largest number of planning and high net worth services at 8.3 — well above those with national or regional brokerages (7.5), independent broker-dealers (7.1) and registered investment advisory firms (6.2). For all of the focus on the movement of advisors and clients out of the wirehouses toward independent channels, the technology integrations and scale of giant firms like Merrill, Wells Fargo, UBS and Morgan Stanley have made them "the far and away leader" in the number of client services, said Andrew Blake, an associate director in Cerulli's wealth management practice. 

"They've been doing that really ahead of any other channel for quite some time," he said, citing areas such as trusts, estate planning and concierge-level luxury amenities. "The wirehouse long ago made these services an integral part of their value proposition and ability to cater to high net worth clients."

Cost-benefit analysis

That fuller range of offerings brings "stickier" client relationships over a longer term with a greater share of their assets and more frequent referrals, according to veteran certified public accountant and planner Debra Taylor, a managing partner and the chief tax strategist with Omaha, Nebraska-based Carson Group. 

But "chasing the other shiny thing" creates the risk "that you can spread yourself too thin," she said in an interview. Her advisory practice's tax planning fuels its emphasis on serving clients who are predominantly women and high net worth, but Taylor's team taps outside firms for needs like return preparation and specialized Medicare planning that requires certain health insurance licenses.

"You need to make sure that you've got the team in place," she said. "We want to make sure that it serves our core mission, that it enhances our value proposition and doesn't just serve as another ornament on our Christmas tree, essentially."

READ MORE: How the industry's mixed signals point to further consolidation 

Advisors who want to bulk up their services should first ask themselves whether those offerings would add quantifiable value for clients and whether they would free them up to meet with customers and prospects, Worthington said. If the answer is "no," then "partnering or outsourcing is likely a better approach," he said.

"We believe it's okay to not be an expert in everything," Worthington said. "Often, specialized, niche-focused practices grow faster than general financial planning firms. Firms should focus on what they do best and closely evaluate third-party providers in specialized services to deliver a smarter, safer and more cost-effective approach than standing up everything with in-house resources. In-house services can seem appealing initially given the ownership and control of the total experience, but managing the talent, resources and operations associated with those services can cost time and money. It can also be emotionally exhausting for a team."