The new administration has brought a focus on deregulation across all industries, including financial services.
Most recently, an executive order was signed to halt the April 10th implementation of the Department of Labor fiduciary rule. Lawmakers are likely to continue the debate, as advocates endorse the benefits to consumers, while opponents look to revise certain provisions or repeal the ruling entirely.
Regardless of the DoL fiduciary rule’s status, there is already a strong secular trend moving in this direction across all areas of financial services — and it continues to accelerate as the advisory industry has been moving from commission-based sales to fee-based and fee-only advice.
According to Cerulli, AUM managed by RIAs and fee-based advisers will increase more than 60% from $4.1 trillion in 2015 to $6.6 trillion in 2019, and RIA and fee-based adviser headcount will expand from 59,000 to 67,000.
A growing number of advisers recognize that putting clients’ best interests first is not only the right thing to do — it is also good for their business.
Numerous industry studies have shown that the most profitable and highest growth firms are those that adopt a fee-based model. Likewise, as we learned in our most recent Advisor Authority study of more than 1,300 RIAs, fee-based advisers and individual investors nationwide, the most successful advisers are more likely to serve clients using a fee-based fiduciary standard.
Our study also shows that a fee-based fiduciary standard is among the top three reasons investors choose to work with an adviser. Today’s educated consumers expect it — and demand it. Ultimately, what financial adviser does not want to be seen as putting their client’s best interests first?
INTEGRATING RISK MANAGEMENT
The new administration has also inherited an economy that is the strongest in years and shows positive momentum.
Unemployment is down, while GDP, wages and household income are moving up. Many economists project that these trends will continue.
But there are also concerns. RIAs and fee-based advisers cited ongoing volatility, global instability and rising interest rates among the macro issues adversely impacting client’s portfolios, according to our study.
As Washington moves to renegotiate trade deals, impose higher tariffs, and enforce other political and regulatory changes, it will likely take time to achieve equilibrium with partners abroad.
Likewise, now that the Fed has signaled a slow return to higher interest rates in 2017, advisers and their clients can expect challenges for the foreseeable future when investing in fixed income, and they can also expect to see increases in the cost of borrowing, refinancing and servicing debt.
Beyond these macro risks, advisers must also manage the investment risks within clients’ portfolio. In a market where all asset classes have become increasingly correlated, alternatives can also provide a unique source of returns and risk to clients’ portfolios, and can significantly enhance diversification. Liquid alternatives offer many of the same characteristics of hedge funds, and use the same nontraditional investing strategies, while also providing daily liquidity, lower fees, and greater transparency.
An integrated and systematic approach is imperative for you to identify and manage these macro risks and investment risks. It begins when you determine a client’s tolerance for risk. Then regularly identify any hidden investment risks within their fund holdings. Finally you must continuously assess and address macro developments in a rapidly changing and increasingly interconnected global economy. The most successful advisers will be both proactive and reactive in their approach to integrate risk management with financial planning.
THE TECH-ENABLED ADVISER
The most successful advisers invest more in technology — and use twice as much technology — when compared to the typical adviser, according to our Advisor Authority study.
These tech-enabled advisers are using technology to refine their practice, enhance investing and advising capabilities, and ultimately serve clients more efficiently and more profitably at every point in the relationship. They can create a more seamless end-to-end customer experience, and provide more holistic advice, rather than focusing on one-off objectives. At the same time, they can also use technology to serve their client’s best interest and maintain a fiduciary standard, by providing greater transparency, lower costs and more choice.
Quote"What financial adviser does not want to be seen as putting their client’s best interests first?"
It begins on the front end by offering a simple and transparent interface to give clients instant access from any device. It facilitates effective real-time communications and transactions across any channel. On the back end, it leverages functionality to create a fully-integrated wealth management platform, to aggregate and manage all of a client’s holdings, across taxable and tax-deferred investments, other held-away accounts, and a broader range of their assets and liabilities.
And rather than being replaced by a robo adviser, tech-enabled advisers use robos as a low-cost automated tool for portfolio allocations, as part of this fully-integrated platform.
While some factors may be out of our hands, you and your clients will benefit if you take control of what you can.
Start by re-tooling your practice to recognize these three long term secular trends that are shaping the future of advising, planning and financial technology.
First, take a more holistic approach to planning and put your client first, because fiduciary is here to stay. Second, have proactive and reactive strategies in place to fully integrate risk management into your financial planning process. Third, leverage innovative technology to minimize costs and maximize profitability, while serving clients’ best interests through increased transparency and more choice.
The greatest opportunities — and the greatest success — often come from the greatest challenges. In times of challenge and change, have your strategy, stay the course, and focus on the long term, so you can build more wealth for your clients and build a more durable practice.
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access