Regulation can be just as much a friend of the advisory industry as an enemy — as long as firms can keep an open dialogue with regulators and a steady eye on the future.

That was largely the message at a panel hosting three industry insiders at the SourceMedia InVest conference in New York. Given an unfolding fiduciary rule and the upcoming Washington decision on data portability (sec.1033), the changing regulatory environment will be a driving force for advisers for the foreseeable future.

NextCapital cofounder Rob Foregger told the audience that while technology may stand out as an obvious disruptor to business models, regulation’s potential role in upending an industry is often overlooked.

“Regulation can usurp market forces at times, or can accelerate market forces that are already in place,” Foregger says. “It can rapidly reorient the competitive landscape.”

If the Department of Labor’s fiduciary rule continues along its planned trajectory, "product manufacturers" — Foregger’s term for traditional firms that create securities such as mutual funds and sell them to consumers — are the likely losers, according to Foregger.

“That industry hasn’t changed in 40 years,” he says.

The good news, says Foregger, is that the more your business model is aligned with the interests of the client, the better off you may be down the road.


ACCESS TO INFO
Any regulatory efforts to curtail data portability will hurt consumers and likely stunt innovation, panelists say.

Elizabeth Kelly, chief of staff at the United Income advisory firm in Washington D.C., called data portability critical to innovation.

Many fintechs, including those working on aggregating account information onto one platform, thrive on open access to such information and represent the next wave of innovation in the financial advice space, she says.

She says hopefully consumers will begin to gravitate toward companies that maintain more transparent and accessible personal information databases.

Foregger agrees that having easy access to personal records feels like a “fundamental right.”

HIDDEN OPPORTUNITIES
Ian McKenna, director of the Finance & Technology Research Centre in England, says he thinks robust regulations not only protect customers, but offer a chance for firms to gain consumer confidence and differentiate themselves from competitors.

“So much of what’s been talked about over the last two days has been about delivering a better customer experience, enabling consumers, consumers taking more control,” McKenna says. “Firms can actually distinguish themselves by showing adherence to good practice.”

In fact, McKenna says that while regulatory bodies may have “overcooked” guidelines in the U.K., those rules have led to an industry that is stronger in many ways.

The stringent tests financial advisers must pass in the U.K., he says, have led to higher consumer confidence, more professionalism among practitioners and bigger profits at many firms.

Some advisers have become so successful, he jokes, that a serious challenge facing firm owners is how to get advisers out of bed in the morning.

FORWARD-THINKING
One interesting idea coming down the regulatory pipeline is to make contributions to retirement savings plans compulsory.

Other countries have already embraced the plan, McKenna noted.

Many Australians now have as much in their retirement plans as they have equity in their homes, he says.

But any compulsory savings measures in the U.S. will be dead on arrival politically, says Kelly, given the American penchant for fiscal autonomy.

Kelly was more enthusiastic about the idea of a “pension dashboard,” a tool already being developed in other countries that aggregates all of an individual’s savings accounts onto an easy-to-use platform.

Streamlining the process to roll over 401(k)s would also help retirement planning, she says, calling it a “problem we should be able to solve.”

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Sean Allocca

Sean Allocca is an associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.