How Models Could Boost Your Value in Succession


Oddly enough, the financial advisor industry has a planning problem.

Nearly 60% of advisors don’t have any form of succession plan in place for their business. And of the minority that does, only 27% have one that is formally documented.

An advisor without a succession plan is like a client without a retirement plan. And like a client’s retirement, your goal in succession is to minimize the barriers to transition, and most importantly maximize value (for both you and your clients).

Advisors can easily increase the value in succession by adopting a model-based approach to investing.

How Can the Use of Models Increase Succession Value?

With attractive benefits, advisor adoption of a model-based approach to investing has become widely popular in recent years.

By creating a portfolio of standardized investment models – blending assets and strategies to match particular investor profiles – advisors can more uniformly and easily manage the client investment experience. That reduces the time required to manage client portfolios, freeing up time to focus on additional value-add services, such as retirement planning and tax management. It also helps you reduce the risk of regulatory backlash – an increasingly relevant challenge in our industry – due to an increased ability to deliver a consistent experience across your book.

Those benefits also lend themselves naturally to the succession process.

Using models in your investment portfolios makes your book more attractive, and in turn, valuable to prospective buyers. A model-based approach is easier to adopt, manage, and integrate seamlessly into the new ecosystem. Your investment philosophy is more easily mimicked. Each client has bought into the model, not your ability to monitor and pick individual assets on a daily basis. That provides two key benefits to a successor.

First, it reduces administrative burden. Instead of having to manage an entire book of individual holdings and assets, client investments can be managed at the model level. In succession, the incoming advisor acquires a substantial number of accounts in a short period of time, greatly increasing their workload. An infrastructure that is easy to manage is essential to a seamless transition.

Second, it reduces the challenge of trying to duplicate another advisor’s investment philosophy. A philosophy is like a thumb print – unique to every advisor and very difficult to replicate. Distilling that philosophy into a few models, rather than individually across a multitude of client accounts (all as unique as your philosophy), reduces the learning curve. This helps the incoming advisor get up to speed and ready to more quickly provide value to your clients.

Using models also makes the transition easier on your clients.  

Models-based investing broadens the advisor value proposition. With individual fund selection an advisor’s core value is found in their investment philosophy, because they are heavily involved in the day-to-day management of each client’s investments. When models are deployed, advisor value is shifted toward planning and holistic guidance. Under this infrastructure, a client can rest assured that their investments will continue to be managed as they were before. Adapting to their new advisor’s guidance is an easier transition than adopting a new investment approach altogether.

It’s also worth mentioning that we are seeing a greater push towards model-based investing as investor preferences and expectations change, along with an increasing need to differentiate through broaden services in the wake of continuous fee wars and advancements in fintech. Using models to diversify advisor value is quickly becoming a best-practice in the industry, giving advisors the freedom and flexibility to focus on deepening client relationships with a more comprehensive investment experience.

Considerations When Transitioning to a Model-Based Approach

Outsourcing vs. Advisor-Directed – The first decision you’ll need to make is whether you build advisor-directed models or use third-party money managers for daily investment management.. Outsourcing can amplify the reduction in administrative workload, giving you increased flexibility to focus on client issues. An argument can also be made that it increased the quality of investment management by leveraging managers whose primary focus begins and ends with building, monitoring, and managing the investments.

Advisor-directed models that are built and managed by you also have merit, giving you more direct control over the investment experience. The right choice for your business comes back to where you find your value.

Technology – The underlying technology of your investment platform should also be considered when adopting models. Your technology should provide tools and resources to make the transition seamless. A seamless transition is important to help reduce client anxiety/headache, and errors associated with widespread asset allocation adjustments. Your investment platform is also where you’ll find easy access to strategist models. Your ability to easily sort, analyze, and select models is critical – both for you, and your successor.

Value Proposition – Deploying a model-based investment framework changes your story. Before making the transition, consider the effects that will have on your value proposition. You’ll need to spend less time on investment philosophy, and more time on investment experience – where your clients will go with your advice and how you’re going to get them there. Studies show that clients aren’t buying investment performance from an advisor, but financial security and peace. Models can help you do that, so long as your story aligns.

What’s your succession plan? If you’re still thinking about ways to increase the value of your book and the long-term value of the clients you’ll leave behind, consider a model-based investing framework. The simple transition now may be worth it in the end.