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CEO sees M&A impact in fiduciary delay

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Financial advisors’ value will grow in 2018, on the strength of new technology tools, M&A deals and a sense of relief around the fiduciary rule.

Now that we have a little more clarity about the Department of Labor’s regulation, given the long delay, firms can explore the best upgrades of their products and services without the looming threat of a rule that is difficult to navigate.

While there is still some uncertainty regarding what the rule will look like in 2019, our industry’s platforms will now stand up to a reasonable best interest standard after many difficult changes to ensure compliance with the rule.

That said, many questions remain about what’s to come in the year ahead. Here are my three main predictions: M&A activity will pick up in 2018, technology will act as an accelerant to our industry and advisors’ value proposition will grow more compelling.

My firm and others remain active buyers in the marketplace on both the institutional and retail sides, though selectivity in any partnership is still critical. In 2018, we believe that M&A will heat up and broker-dealers, RIAs, and smaller financial tech companies will continue to be acquired.

There are three primary reasons:

  • The DoL will continue to offer guidance about the nuances of the rule. In 2017, many potential buyers and sellers held off from completing deals because of the many possible changes to the rule.
  • The bull market entered an unprecedented eighth year in 2017. Eventually, the market may cool down, and we could see a sell-off or correction. A volatile market could also help promote increased M&A activity.
  • Finally, on the retail side, the advanced average age of the advisor population will serve as a catalyst for M&A activity in the retail RIA space. The vast majority of those transactions will likely be hybrid RIAs.

Fintech has emerged as another trend to watch closely in recent years. It’s no secret that the industry has benefited tremendously from the advent of advisor- and client-specific technology, something that will continue to disrupt financial services in several ways.

  • Generation X and millennial advisors and clients will adopt integrated technology instead of trying to reinvent the wheel.
  • These integrations will allow advisors to easily build proposals, effectively manage client assets, generate performance reports and analyze investment opportunities all from one single hub.
  • Technology will help advisors become more efficient and add scale to their practices.

The bulked-up capabilities come with longstanding attributes of advisors that are becoming more valuable in complex times. Part of the real benefit advisors bring their clients is building holistic, foundational plans and understanding the clients’ complete financial picture.

  • The best professionals in our industry are as much psychologists as they are financial advisors. The advisors who have the best client retention make a concerted effort to position themselves as trusted counselors on many financial matters, not just portfolio management or asset allocation.
  • After the 2008 financial crisis, there was a shift to advisors managing portfolios themselves to add value and drive costs down. As advisors continue to home in on the broader value they bring to their clients, we predict an even more pronounced shift back to third-party portfolio managers in the ongoing reversal of this trend.

Overall, we think 2018 will be an exciting, productive year for advisors, as long as they stay focused on their goals, deliver top-tier services to clients and keep an eye out for headwinds.

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