We’ve been talking about the market forces within the financial services industry that are moving us toward a new fiduciary environment. Because even though the U.S. Department of Labor Fiduciary Rule seems to be delayed until summer, what started in late 2016 continues to gain momentum.
At the end of last year, several firms announced strategies to mitigate conflicts of interest, and news articles have been asking consumers to ask their advisor if they are a fiduciary. Several advisors have told me that prospects have asked them on the phone if they are fiduciaries before making an appointment.
It is clear that changes in our business began even before the rule was announced. According to Morningstar, the number of ETFs charging less than 10bps rose from 125 to 348 from 2010 to 2015.* Consumers have more access to information than ever before. And, more groups are focused on the educational aspects of our industry, which is a good thing for everyone. So, even though the rule, the delay, and the pending litigation remain a focal point for our industry, consumer groups have already been forcing change.
It seems compressed revenue, whether it be fee- or commission-based, will likely take hold over the next three to five years. If you are only earning revenue from managing assets, you need to re-think your business model. Some experts believe asset management only will gross only 40-50 basis points, and we clearly see the trend moving that way today.
In order to sustain a healthy business model as a planner, you’ll need to expand your horizon and modify how you manage wealth. That includes leveraging protection solutions, such as insurance, annuities and alternative products, to maximize your client relationships. Many of us many will need to partner or merge with experts in collaborating fields in order to grow revenues. Without a doubt, you’ll need to add valuable services that will retain customers and help you acquire new relationships.
If you stagnate in your offerings, you will likely find yourself earning less than the 40-50 basis points mentioned. Or, you might find yourself out of business.
Your clients will only continue to become more fee-conscious and look for the most efficient asset management. There’s too much information out there about asset allocation services, so that can’t be your only offering. Instead, your expertise should be driving from managing different and expanded segments of your clients’ financial lives. But, that will require a willingness, a mindset, a toughness, and a curiosity to make your clients’ lives better in the long run. I’m confident all of us in the financial professional community are up to the challenge.
Look to add to your existing services in order to offset the likely fee- or commission-based compression over the next three to vie years. Adding valuable solutions to your menu of client services will provide leverage and lift to future revenue in your firm.
Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of annuities at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”
*Wall Street Journal, “WSJ Wealth Adviser Briefing: Broker Fee War, Morgan’s Make-Right, FAs on Snap’s IPO,” March 1, 2017: http://blogs.wsj.com/moneybeat/2017/03/01/wsj-wealth-adviser-briefing-broker-fee-war-morgans-make-right-fas-on-snaps-ipo/
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