In the aftermath of the financial crisis, the financial advisory industry is experiencing dramatic growth in practice efficiency and professionalism of management, a new report suggests.

The white paper by Bob Veres, a San Diego-based commentator, author and consultant with more than 20 years of experience in the financial services industry, outlines the opportunities, challenges and trends in the financial advisory business for the decade ahead.

The report says that the financial crisis has initiated a profound shift in the business.

“The market meltdown — the second in ten years — appears to be accomplishing what every significant environmental crisis does in its aftermath: accelerate the evolution of those nimble enough to respond, and accelerate the decline or demise of those which are not,” the report says.

The most significant result of this shift, according to Veres, is that advisory firms will be managed more efficiently and professionally in the future.

Firms that saw their profits plummet during the downturn have realized the importance of achieving greater operational efficiency, the report says.

In addition, the regulatory crackdown that is resulting from the crisis means firms are preparing for more cumbersome compliance requirements. “Advisory firms will also be forced to seek operational efficiency as their compliance costs and errors and omissions premiums increase,” the report says.

The looming wave of retirement among aging business owners is another factor prompting them to improve the efficiency of their practices. As advisors prepare to sell their practice, they’re motivated to make improvements that will monetize the value of the firm, and ensure the business can survive its owner, according to Veres.

Greater consolidation is set to be another industry trend in the coming decade. But Veres does not expect this phenomenon to make smaller practices obsolete.

“As the profession embarks on a search for that balance between intimacy and scale, we believe it will create a landscape of advisory firms that fall into a size zone not unlike the legal profession, where the business ecology includes multipartner organizations, some of them specialized, plus smaller firms and solo practitioners whose businesses are equally viable,” the report says.

But as smaller firms seek operational efficiencies, Veres says they’re likely consider merging with other small practices to gain advantages of scale.

When it comes to demand for financial advice, the white paper suggests that there will be no shortage in the decade ahead — at least in the U.S.

“There is evidence that more Americans will seek the advice of financial advisory firms in the next 10 years than in any previous decade,” the white paper says.

It points to research showing that a growing number of workers are not confident that they’ll have enough money to retire comfortably – a reality that has emerged in Canada, as well.

“As workers get closer to retirement age, questions of portfolio sufficiency and investment efficiency become more pressing and immediate,” the report says. “Financial planners with a fiduciary orientation would seem to have an excellent chance of capturing a major share of these potential clients.”

IE