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Morgan Stanley Changes Financial Adviser Model

ThinkAdvisor, an American newsletter, recently published a very informative article on the views of Morgan Stanley on how financial advisers need to adapt to succeed in the future. Its views on robo-advice, gen X and millennials, in particular, are very interesting.

ThinkAdvisor recently interviewed Jim Tracy, a former chairman of the Money Management Institute who has been in financial services for more than three decades, about the present, the future and the past – the past referring to how things were done in the past.

THINKADVISOR: Please describe the practice of the financial advisor of the future.

JIM TRACY: It’s a family wealth advisory model, where the advisor will be less focused on the individual client and more focused on family needs and goals to become the trusted financial advisor of the entire family. The services that were provided for the patriarch or matriarch will be provided for the whole family.

What’s the biggest challenge?

That transition to the family wealth advisor model. It comes with focusing more on financial planning, creating diversity among your team – not only in age but in ethnicity – to make sure your practice looks more like the clients you’ll be dealing with in the future. It’s about training advisors to evolve as clients are evolving. So the practice management model has to shift, and advisors need to change. Some of them are doing business the way they did 10 or 15 years ago.

What are the most important demographic shifts FAs need to be aware of?

In not too many years, women will control the decision-making on 60% of U.S. wealth. So there’s a higher need for advisors to be able to communicate with multiple family members, including Generation X and millennials.

Certainly much attention is being paid to millennials?

Yes, but the Gen X universe of older children are the likely inheritors of the current client. There’s a fair probability that the average client approaching retirement will transition a lot of their assets to their Gen X children first. The aging baby boomer’s assets will flow first to Gen X and second to the millennial clients, or some combination of both.

What other insight into Gen X and the millennials can you share?

The one thing people are missing in this whole analysis of the marketplace is that we change over time. People assume the differences between Gen X and millennials are going to be that way forever. But that’s not true because as they go on in life, their needs will change and how they want to engage will completely change.

Exactly how will the millennials change?

Our expectation is that with [mounting] responsibilities, complexities and challenges in life, they’ll become much more serious and more desirous of having a relationship with a trained professional that’s been attentive to them over the years and has the skills [to help them] for the rest of their life.

How do robo-advisors fit into all this?

Robos sit right where the industry was 20 years ago – focusing on investments. There’s nothing new that’s being offered. The algorithms, a lot of the models – all firms have done that for many, many years. What’s new is the access. Robos aren’t complete solutions and certainly don’t pass the needs test of high-net-worth and ultra-high net worth clients.

What about robos’ lower cost that attracts many folks?

Many more investors are focused on value than on cost. Cost is an issue in the absence of value. Clients place a much higher premium on having planning conversations and talking about family trusts and estates than on [low cost]. You can commoditize investment advice, which is what’s essentially happening with robo-advisors, ETFs and indexing. But you can’t commoditize the added value that many advisors bring to the table.

What trends and pressures are affecting the managed money business?

There’s been significant growth in managed money. The appetite to be in a managed account program has increased, and assets are growing at a low double-digit rate. Trends in the industry are impacting how products are built and developed, and clients are showing a preference for being in an advisory relationship.

What trends are affecting products?

Active managers have struggled in terms of competitive performance vs. ETFs and [other] passive solutions. To me, it’s not a discussion of active or passive. As we develop portfolios for clients today, we’re doing more around active-passive optimization, making sure that we’re optimizing active managers where they have a tendency to do well. And we’re utilizing passive management in areas where they consistently perform in line with or outperform active managers.

What’s the biggest challenge for managed money advisors right now?

It’s not necessarily managing money. It’s far beyond investing only. It’s: Is your practice changing to make sure you’re meeting the needs of your client and their family for the next 20 or 30 years? It’s: how is your client changing? How is their family changing? It’s a shift away from “Hey, I do investments” to “I’m a trusted advisor, and I assist families in the following ways.”

Read the full article here: How Morgan Stanley Is Changing Its Advisor Business Model.

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