The financial services industry has been changing very rapidly for the last couple of years. The Department of Labor tried (unsuccessfully) to impose a very punitive version of a fiduciary standard on financial advisors who sold investment products inside of Individual Retirement Accounts (IRA’s). Even though that effort was thwarted, this topic has become a political football and has inspired a wave of actions that appears to be growing. Broker/dealer compliance teams have spent hundreds (maybe thousands) of hours trying to prepare for what comes next. Will it be the SEC who imposes the ultimate version of a fiduciary standard? Will it be the states who do it? Will the DOL come back with a fresh version of the original recommendation for a fiduciary standard if the 2020 election swings in favor of someone like Elizabeth Warren (who was a staunch supporter of the DOL fiduciary standard)? These are questions that won’t be answered anytime soon. Another consequence of all of this has been massive amounts of industry consolidation. Private equity groups have purchased some of the largest independent broker/dealers. Small broker/dealers are collapsing due to the increasing cost of compliance and technology. Registered Investment Advisors (RIA’s) are growing quickly through acquisitions. Add to this constant price compression at the product level (mutual funds and ETFs), platform fee level, advisory level and suddenly – the brokerage level. No commissions on transactions. Wow! All of this will have significant consequences across the industry.
As financial advisors focus on finishing their year strong, they may be unable to pay attention to the changing landscape as they prepare their business plans for 2020. How would a President Warren impact their business? What new expectations will be imposed on them as a financial advisor? How will advisors be able to prove they “know” their client? Will these new compliance requirements cost them valuable time? If so, what changes will need to be made in their practice to remain a growing, profitable business? Will financial advisors have to accept the reality that they will have to perform more for their clients for less fee-based compensation? These are questions of great significance that will take time to answer.
I am inviting comments, suggestions and criticisms of these thoughts to better understand where our industry is in terms of forward vision on these important challenges. On January 1st, 2020, Real Intelligence LLC will be operational to help financial advisors, branch managers, compliance officers and wholesale distributors overcome the competitive challenges of artificial intelligence and the race to zero. We look forward to sharing our technology and unique methods with our partners at that time. Please feel free to weigh in on any of these topics for financial advisors who are in the growth mode, maintain mode or exit mode of their careers.