Why Joe Duran believes that classic RIA firms face extinction

Baby Boomers' expectations and rising technology could put a new squeeze on the old model

Tuesday 5.17.11 by Lisa Shidler

Joseph Duran, the CEO of one of the fastest growing aggregators in the country, predicts the model of financial advice that now dominates the industry will go extinct much more quickly than predicted because of the retirement of the Baby Boomers.

In a new white paper, dubbed “The Consumer Revolution,” the CEO of United Capital Financial Advisors, LLC, points out that the Baby Boomers have transformed many industries as they have aged through the system with demands for customized, cheap services.

“I suspect 10 years from now, there will be a lot of advisors as employees in brokerages and independent advisors who don’t differentiate themselves,” Duran says. “Unless they have billions of dollars, they won’t be able to compete.”

Industry leaders have been predicting gloom and doom for advisors for more than a decade. But the naysayers’ voices have grown louder of late.


Laura Kogen, a practice management consultant with Fiduciary Access, LLC, says she agrees with Duran that smaller firms will in fact become extinct.

“I think there will be some disruptive event that will drastically change the industry,” she says. “Like the dinosaurs, a whole bunch of these players will be gone because they can’t adapt to the new model.”

She believes advisors will likely lose business to a do-it-your-self internet model that will likely enter the scene in the coming years. When that happens, these advisors will face price compression and will either sell to larger players or accept dirt low margins.

Transformational shift

Duran says the shift in the industry lead by retired baby boomers will be abrupt, disruptive and transformational because these consumers are accustomed to getting exactly what they want quickly, cheaply and customized to their needs. Baby boomers will demand lower fees.

“For advisors to survive they’ll have to work twice as hard for half of the money,” Duran says.

The winners will be those who offer customized wealth management services, on a scale that allows them to do so at fairly low rates. Not surprisingly, he says United Capital, which has $13 Billion in assets under advisement and 30 offices around the country, will be one of those winners. Its average client has about $2 million in assets. See: United Capital calls its partner firms to Berkeley to help execute ambitious plan.

While Duran sees a fast change in the offing for the advisory business, others see a more gradual process at work.

“People said the sky was falling years ago in this industry,” says Joni Youngwirth, the managing principal of practice management at Commonwealth Financial Network. “If the sky is falling, it is falling rather slowly. I’m not sitting here depressed about everything.” See: What to make of Mark Hurley’s latest prophesy that most RIA firms will go out with a whimper.

Still, Just 10 years ago, Youngwirth acknowledges, about 80% of the large Commonwealth advisors were solo practitioners. Now, the numbers have reversed and about 80% of Commonwealth’s top advisors are ensembles.

Industry veteran Bob Veres, a commentator, author, and consultant for more than 20 years, crafted his own white paper in the fall that delves into the way he sees the industry changing. In his white paper, which he’s currently crafting into a book, he says the advisory firm is “undergoing a metamorphosis unlike anything that has been experienced in the 40-year history of the profession.” See: Bob Veres adds his bottom line to valuation debate started by Mark Hurley.

He takes on a more optimistic approach but agrees with Duran that the scalability in the industry is a key factor.

Bob Veres:Some will hang on to the old ways of doing things.
Bob Veres:Some will hang on to
the old ways of doing things.

“The profession is rewriting its own rules,” he says. “It seems to me the profession has a huge window of prosperity ahead of it. Certain advisors will take full advantage of the prosperity and some will hang on to the old ways of doing things.”

Maturing clients

Duran, an author and expert in entrepreneurship, was president of Centurion Capital Management starting in 1992. He led the company to growth with billions under management, culminating in the sale to GE Financial in 2001. He’s again executing an aggregation strategy to build scale on the path to an IPO with United Capital. See: One of a new breed of roll-ups taking center stage, United Capital is churning out deals again. Starting with modest deals, he’s doing increasingly large ones. See: United Capital scoops up a $1.6 billion wealth manager from M&T.

In his white paper, he argues the career of the financial advisor is headed down the same path as those the careers of travel agents followed. He points to the effect of discount shops like Expedia and Travelocity.

“That’s where I think it’s exactly like the travel agency,” he says. “These one-man shops think things aren’t changing. They don’t realize it until it’s too late.”

In the advisory business, he says, fees for advice will ultimately replace the investment management fee. His company’s fee for advice makes up just 25% or so of the client’s total fee, but he suspects in five to 10 years the fee for advice will actually be 75% of the firm’s fee, with just 25% of that fee as an investment management fee.

“There will be a whole new wave of firms that will create value by helping clients with their whole financial life,” he says. “In order to survive, advisors will need to learn how to do wealth counseling.”

Certainly, other large firms are hoping to grab clients by becoming massive firms where they can capitalize on scale by offering attractive fees to clients. He concedes there are other national firms rapidly growing and fighting for clients, but argues that these firms expertise is investment management and not wealth management.

Adam Bold’s Mutual Fund Store and Ric Edelman have both announced major expansion plans and are rapidly growing to serve clients across the country. See: Edelman joins ranks of TV RIAs with PBS show that will reach 20 million and Radio-star RIAs drive giant growth at national chains one $400,000 investor at a time.

New wave of financial service firms/How to survive

There’s no question the advisory industry is in a state of flux, agrees Rich Lynch, COO of Fi360, a firm that provides fiduciary training to advisors.

“Advisors need to raise the bar to demonstrate that they need to add value,” he says. “In order to raise the bar, you need to embrace the fiduciary approach.”

Duran predicts that the new wave of financial advisory firms will offer a customized, original and scalable client experience. He says these new firms will view their roles to be truthful and honest to clients – particularly in terms of telling clients no.

In addition to the boomers’ driving down costs, he also predicts that they’ll demand more services which will focus less on investments and more on overall wealth decision-making. “These baby boomers are far more optimistic than their parents but they’re retiring with far less and will live longer,” he says. “Someone needs to say to the client that you can’t afford this.”

Duran says that many advisors are already experiencing cracks in their surface mostly because they’ve already begun cutting costs for clients and their margins are already tight. “We’re seeing firms at $300, $400 or $500 million with very bad profit margins and they can’t charge enough. They’re struggling to grow because they don’t have a compelling offer and they’re not doing anything these individuals can’t get anywhere else.”

Advisors who succeed going forward are those who will charge for their advice and will help their clients make good decisions.

“You need to charge to help clients understand and make good decisions,” he says. “You also need to be able to tell clients if they can’t afford something.”

Joe Duran | Laura Kogen

United Capital | Commonwealth Financial Network | Fiduciary Access