There is no denying that it is an exciting time to be in the investment industry. Technological and regulatory changes, combined with the evolving preferences of key demographic groups are pushing RIAs and other financial professionals to blaze new trails.
While this makes many in the industry uncomfortable, adaptation to the new investment landscape will be crucial, and ultimately, it will come down to a ‘survival of the fittest’ scenario. Those who don’t leverage technology, and continuously seek information that can change their business model are going to be at a huge disadvantage—one that could eventually put them out of business. Emphasizing certain key concepts to your clientele can be one way to ease everyone’s mind during this tumultuous era.
Emphasize Long-term Planning vs. Short-term Goals
The market is currently at an unprecedented high, and while predictions tend to be favorable over the next few years, there is still a lot of risk with any investment. Periods of dramatic market fluctuation tend to make investors nervous. Stressing the difference between long-term planning and short-term performance will help to convey the true value of an advisor, including the knowledge and experience they have, allowing them to better navigate periods of economic uncertainty.
Embrace the Role of Advisor and Educator
One compelling industry prediction is that over the next decade, advising will undergo a shift from asset management functions to providing more strategic planning and continuous coaching to clients. Some firms have already gone through mergers or acquisitions in order to provide this scope of services to their clientele. Mergers and acquisitions can also serve to leverage collaboration, save time, acquire talent and reduce the learning curve —all of which will serve as a competitive advantage over those that do not evolve in step with the industry.
In order to adequately prepare a client for their investment future and their relationship to you, the advisor, you must clearly communicate the value in your personalized services and industry knowledge, and why it is an asset. Typically, clients have a fundamental understanding of this, but providing this information in a way that allows them to see the relationship between compensation and all services provided, rather than just portfolio performance, helps them to understand exactly what they are paying for. It is also imperative to clearly explain the risk levels of all investments, as well as conveying an understanding that unforeseen events can always have a huge impact on their investments, something no professional can anticipate.
On March 15th the U.S. Court of Appeals for the Fifth Circuit ruled in Chamber of Commerce v. U.S. Department of Labor that the Department of Labor had exceeded its boundaries in adopting the Fiduciary Rule, very likely resulting in its dissolution as early as May of this year. But there remains a great deal of uncertainty over what will happen next. Jay Clayton, Chairman of the Securities and Exchange Commission, is currently leading the charge on implementing a fiduciary standard for brokers and advisors, so the concept of a uniform rule isn’t going away. The call for greater transparency in the industry could get stronger—and could be good for business. When advisors engage in discussions about compensation, fees, and investments with or without a load, they demonstrate the ability to be candid and trustworthy, a trait that every investor looks for in an advisor.
If you had asked an advisor in the 1990s what they thought the industry would look like today, I can assure you their answer would be nowhere close to where we are. Technology has revolutionized many industries and processes. Furthermore, unanticipated regulations, consumer preferences, and the speed in which information and transactions occur have all had substantial impacts in the progression of the industry. Just as no one could foresee the rapid onslaught of changes in the past couple decades, we are equally ignorant of what the future holds. Remaining nimble and ready for change, in any form, will be the best way to thrive and grow your advising firm.
The future is a scary place, and humans tend to resist change if they can. But within the investing industry, these changes don’t necessarily have to have a negative connotation. In fact, RIAs who innovate and welcome change by positively incorporating it into their business model and culture, can come out as big winners moving forward.
Do you have any questions? Speak with an Investor Relations Representative.