Industry influencers and independent investment advisors congregated in Palm Beach. Fla., last week for TD Ameritrade's Elite Advisor and Fiduciary Leadership summits to discuss how to strengthen advisor practices and navigate a turbulent regulatory environment.
1. MARATHON DEBATE OVER FIDUCIARY STANDARD
"The number one issue advisors tell us they worry about is the potential of becoming subject to a rules-based standard and regulatory regime. This would have the most direct impact on registered investment advisory firms. The principles-based fiduciary standard, with its origins in the Investment Advisers Act of 1940, has worked very well for investors who hire fiduciary advisers to help guide them in their financial decisions. That standard is higher than the brokers' suitability standard and should not -- under any circumstances -- be lowered."
Skip Schweiss, managing director of advisor advocacy at TD Ameritrade Institutional
2. LESSON FOR FINANCIAL SYSTEM
"The most interesting thing I learned at TD Ameritrade was from author, economist, and former derivative trader Nassim Talebs keynote speech: That systems, markets, ecosystems, the human body, etc. -- all need variability and stressors to stay robust and if you remove that volatility, then things become fragile and can break. This is a very good counter-intuitive lesson for our current financial system."
Timothy Welsh, president of Nexus Strategy
"Dont fall into the trap of hiring people who dont have the necessary skills and abilities to grow within your organization. When you hire someone at a particular level, make sure you are comfortable that they will be able to grow into a more senior role. For example, if you are hiring an Operations Manager, make sure they have the capacity to grow into a Director of Operations role and maybe even a Chief Operating Officer role. It's easy to hire the person who can solve the immediate need in an organization, but if your organization is growing, they need to be able to grow with you, otherwise, you will be forced to look on the outside for leadership roles in the future, as opposed to promoting the talent from within."
Timothy Chase, WMS Partners
4. 'NERVOUSLY' WATCHING
"We're still nervously watching Congress on the fiduciary standard debate, and we will be until a decision is finally made. In the end, the modified fiduciary standard will not benefit the consumers -- it will purely benefit the regulators while passing on more costs to our clients,"
Glenn Kautt of Savant Capital Management
5. IN WHOSE BEST INTEREST?
"When most of us in the industry talk about the fiduciary standard, we usually focus on the consumer or individual investor, and the discussion centers around them, their well-being, their protection, and their best interest. When you listen to the broker-dealer side of the industry (specifically SIFMA), it seems like the discussion rarely focuses on the consumer and their best interest...I went into the conference very optimistic about the creation of a fiduciary standard for all 'advisors' in the industry. I came away feeling quite scared that we'll end up with a watered down fiduciary standard that would make me long for the days where at least RIAs were obviously under a fiduciary standard, and broker-dealers were obviously under a suitability standard."
Luke Dean, financial planning program director at William Paterson University
6. PREPARE FOR DEMOGRAPHIC SHIFTS
Demographic shifts are coming, and advisors need to prepare or they'll be left in the dust, according to TD Ameritrade CEO Fred Tomczyk and Tom Nally, president of TD Ameritrade Institutional. "Quite frankly, adivsors are not doing a good enough job preparing for these shifts," Nally said in an interview. "If we go down the current road, we're going to be in a lot of trouble."
7. A GOOD EXEC
"Competitive instinct, but also a fear of failure make a good executive."
TD Ameritrade CEO Fred Tomczyk
8. FUTURE OUTLOOK
It's the next generation of advisors that will shape what the financial planning industry is going to look 5-10 years from now, according to Richard Brown, CEO of JNBA Financial Advisors and senior fellow of the University of Minnesota Duluth's Labovitz School of Business and Economics. A lot of these advisory companies are one or two people who are the face of the business. They especially need to understand how important succession planning is and adapt to technology, and students are going to help with that.
"Advisors need to revamp their core service offering to make themselves more amenable to the oncoming digital generation, because people are truly communicating differently. But if advisors are only going to be in business for roughly 10 more years before retirement, some say 'why bother' making huge reinvestments and subsequently restructuring their offering to accommodate a lower/younger demographic set that will not bring in meaningful revenues before the advisors would be able to recoup their costs. The only way it makes sense for these advisors to re-calibrate their offering to a more digital platform is to have these changes manifest themselves in the ultimate valuation of their firms to a greater degree than the higher, present value cash flow they would generate from growing their practice with higher net worth investors that are fine with the current advisor-client dynamic."
Alex Murguia, managing principal of McLean Asset Management Corporation
Culture is pivotal because it plays a key role in determining how firms make decisions to achieve their business objectives. Culture is at the heart of competitive advantage today; this is particularly the case for investment firms where people and their judgments are the chief assets. A firm’s culture creates the context and incentive structure to support an investment process based on a longer time horizon, a collaborative team approach that can integrate diverse insights and robust risk management. Culture also underpins business decisions, including talent management, strategy and capacity management. A strong culture in investment management firms is a requirement for sustainable alpha-generation.