The State of Things for Advisors

“May you live in interesting times” is sometimes used as a curse, or at least a wish that the future be less than stellar for whomever it is directed toward. Some consider these interesting times for advisors, as new regulations and measures arise that affect them and what they do. Michael Kitces, Partner and the Director of Research for Pinnacle Advisory Group, offered his insights on the state of things for advisors in a recent interview.

“Most financial advisors are so immersed in their own advisory firms, it’s hard to take a step back and look around to see what’s happening in the landscape,” Kitces said in an interview with FiduciaryNews’ Chris Carosa at a recent meeting of the Syracuse, N.Y. chapter of the Financial Planning Association. “Because of that, I think financial advisors tend to miss a lot of the broader business trends — from the shifting role of technology to the ongoing “crisis of differentiation” as more and more advisors adopt comprehensive financial planning,” he continued.

Kitces doesn’t think that “the looming potential of state-run retirement plans” is on advisors’ radar screen. But he adds that may be okay, saying that he is “not certain it will be a significant impact for them, either.”

Kitces’ position is based on his argument that “most advisors don’t build their businesses on initial retirement account contributions, and will still be there to solicit IRA rollovers of larger accounts.” Still, he thinks that it is more likely that in a few years they will have a “real impact” on advisors that focus in the small business retirement plan market.

Fiduciary Rule

Kitces calls the Department of Labor’s (DOL) fiduciary rule “a watershed moment for the emergence of a bona fide financial planning profession.” He argues that the rule will change the financial advisor industry, telling Carosa, “Ultimately, I expect we’ll see the DOL fiduciary rule clear the decks of the most sales-oriented ‘financial advisors’ — who were really just financial services product salespeople — while having only limited impact on real advice-centric financial advisors.

Kitces says that the “transition from sales to advice will be messy” and that among the changes it will make will be to “force true advisors to upgrade their skillsets (in terms of both technical competency and relationship empathy), and drive the growth of niches and specializations.”

In the end, Kitces sees a silver lining for advisors in the fiduciary rule, arguing that it will “make the real financial advisors more valuable than ever” and that the changes that will result because of it in the long run will be “a huge plus for establishing a recognized professional status for advisors.”

Crystal Ball

Kitces thinks that by 10 years from now, a standard of fiduciary duty will be applied uniformly to financial advisors. In addition, he expects that “the delivery of financial advice will be almost entirely separated from the sale of products — not that the implementation of products isn’t necessary, but that the advice stands alone, just as doctors diagnose and prescribe but aren’t compensated by the drug companies (even though the doctors ultimately recommend the drugs).”