With the end of 2019 at hand, it’s also the end of a decade of technological progress, industry development, and regulatory change for independent financial advisors. Of course, the end of one decade means the beginning of another, and you can bet there will be change in the next one too.
No one can predict exactly what the next 10 years will hold, but that doesn’t mean we can’t speculate. Let’s discuss some of the most important trends and topics in our industry as we prepare for not only next year, but also the next decade.
The elephant in the room: Regulation
Perhaps the most important question for the next decade is how the regulatory authorities will continue to shape the industry. Reg BI, slated to go into effect in June 2020, has the potential to set the tone for the next 10 years.
Essentially, the Reg BI rules mandate brokers to work in the best interest of their clients when making investment recommendations, beyond the previous suitability standard. The new rules are controversial for a variety of reasons. Some, including SEC Commissioner Robert Jackson, argue the rules fail to sufficiently define the higher standard. Others argue the rules could give investors a false sense of greater protection.
At any rate, it’s a safe bet that financial advising in the 2020s will be greatly influenced by the rules, which require broker-dealers to disclose material facts about the relationship between the broker and the customer as well as between the broker and their recommended investments. The rules also require broker-dealers to establish written policies and procedures to eliminate or at least disclose conflicts of interests.
So, at the very least, brokers will need to implement a process of documentation and disclosures to demonstrate best interest.
However, the rules still have hurdles to clear. In September 2019, a group of state attorneys general filed a federal lawsuit against the SEC contesting Reg BI. They argue the rules don’t do enough to protect investors. And to be frank, as we saw with the Fiduciary Rule, there’s always the possibility the rules won’t come to fruition or will be repealed in the near future.
Read: Reg BI: What You Can Do Now to Prepare
Industry disruption and pricing changes
That brings us to another industry trend we can expect to continue into the 2020s: the shift to advice-based business and the so-called “race to zero.” The race to zero refers to the economic pressures that have led to lower prices in the advice industry. Since 1975, after the end of the fixed-rate commission for all trades, discount stock brokers have continued to lower prices. That is, until October 2019, when Charles Schwab finally eliminated commissions on U.S stocks, ETFs and options. Soon, many other discount brokerages would follow suit.
In recent years, we’ve seen disruption and pricing changes in the industry largely driven by lower technological costs to execute online trades and the cutthroat competition to claim investors. However, perhaps the most significant shift is the migration for many financial professionals to an advice-based practice model rather than one dependent on transactions.
Regardless, the value proposition of “cheaper is better” is continuing to disrupt the financial advisory industry. The immediate result is consolidation. In fact, we already saw in November that Charles Schwab plans to acquire TD Ameritrade for $26 billion in 2020. With the increased competition in this space, you can expect to see more mergers and acquisitions.
Read: What Do Zero Commission Trades Mean for Independent Financial Advisors?
Technology, of course
Naturally, the biggest buzzword when it comes to the future is technology. As we saw in the past decade (and many before that), tech played a crucial role in the financial services industry. For instance, there was the introduction of roboadvisors, mobile banking and trading, and more sophisticated platforms that streamline the financial advising practice. Obviously, we can expect technology to continue to play a key role.
That’s why the slow embrace of newer technologies in the U.S. was cited as a chief concern at the SEC’s State of Our Securities Markets conference. Gary Cohn, the former director of the U.S. National Economic Council, said the U.S. risks losing its position as the world’s dominant capital market if we don’t keep up with other quickly-digitizing markets around the world.
Central to this goal, Cohn said, was fully securing smartphones and cautiously recognizing the opportunities in blockchain technologies.
For most financial advisors, having the right technology means being with the right firm or broker-dealer. According to Investopedia, nearly 40 percent of financial institutions are working to make digital improvements to their business. Most of these improvements allow advisors to have a customized, engaging approach to serving their clients.
Click Here to Learn More About Atria Wealth Solutions’ Vision for the Industry
These changes are important because Investors will continue to want more control and insight into their accounts. Just as consumers today have more control over when and what TV they watch, clients will continue to expect a more-engaging investing experience. Informative and easy-to-use client-facing platforms — and comprehensive advisor-facing platforms — will be a cornerstone of the financial advising practice of the future.
The importance of the advisor-client relationship
No matter what happens in the next 10 years, independent advisors should continue to prioritize the bedrock of their business: the relationship with the client. Familiarity is key when it comes to
- Family planning
- Liability management
- Wealth management
- Retirement
- Legacy planning
Click here to learn how Atria is taking steps to help advisors connect with their clients
All the changes I’ve discussed in this blog, whether it’s newer technology, cheaper forms of advice, or increased regulatory scrutiny, can be addressed by cultivating and documenting personal advisor-client relationships that lead to genuinely exceptional service.
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Sources:
https://www.investopedia.com/how-technology-is-changing-financial-advice-4774011
https://www.investopedia.com/terms/m/mayday.asp
http://www.stock-trading-warrior.com/History-of-Online-Stock-Trading.html
