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SEI reveals emerging risks threatening advisory firms


Advisory firms face new vulnerabilities caused by a powerful combination of risks, according to a white paper released by SEI.

The Risk Dynamic examines how five distinct, yet interrelated, risks compound firm pressures, such as diminished operating margins and revenues, increasing client demands and industry scandals and struggles.

It draws on survey findings, third-party industry research, and perspectives from among the more than 6,000 independent financial advisors who work with the SEI Advisor Network.

The types of risk include:

1. Infrastructure, which is related to deficiencies in internal business processes and the technologies that support them;
2. Organisational, a risk driven by the allocation and management of the human and financial resources that sustain the business;
3. Fiduciary, a growing concern related to client suitability, investment processes, and the advisor’s responsibility to make the right decisions for clients;
4. Reputation, which is related to the state of the advisor firm’s brand recognition and perception among existing clients and in the marketplace; and
5. Client, which hinges on the strength of the client relationship, alignment of needs and expectations, transparency, and comfort with the investment process.

In addition to evaluating the risk dynamic’s effect on firms as a whole, the paper also presents a set of strategies to mitigate each of the risks separately and in combination.

According to the paper, the strategies demand an interrelated and multi-pronged approach consisting of communication, management, and process-oriented tactics.

"Despite months of market turmoil, advisors need to control the impulse to implement short-term fixes and instead focus on long-term solutions," says Kevin Crowe, SEI’s head of advisor solutions. "By opening themselves up to exploring new business strategies, advisors can both survive and thrive even in the face of market and industry challenges."

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