- We asked financial advisors from wealth management firms ranked in the FA 100 what challenges or changes they foresee for the industry ahead.
- Fee compression, disintermediation, investor shortsightedness and the inexperience of younger clients are some of the worries keeping advisors up at night.
Financial advisors do their best to counsel clients on sound approaches to financial decision making, yet no good wealth manager would claim to have a crystal ball. The only certainty is that no one can predict the future or time the market.
Any advisor worth his or her salt — including the leading wealth managers that made the CNBC FA 100 list for 2019 — can make an educated guess or two about where the financial advice industry might be headed.
We asked advisors from firms that made the FA 100 list what challenges or changes they foresee. Their replies follow.
California Financial Advisors, San Ramon, California
• Mark Pitre, principal: "The biggest challenge going forward is trying to educate younger generations that there is no short cut to financial independence. Many 35-year-old, and younger, individuals have never seen a down market ... and they have grown up embracing debt. As such, they are ill prepared to endure any challenging economic [or] financial time.
"They need to follow three guiding principles: One, work hard. Two, save money. And three, spend on needs, not wants. The ability to educate younger individuals about these principles is an ongoing struggle."
More from Financial Advisor 100:
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Dana Investment Advisors, Waukesha, Wisconsin
• Mark Mirsberger, CEO: "The biggest challenge is probably dealing with significant fee compression in the face of rapidly rising research, regulatory and technology costs. You saw it [recently] with the brokers eliminating trade commission so ... they're going to have to find different revenue streams. I think for asset managers you've seen it within mutual funds and ETFs and now even with advisory firms, fees are going down ... and pretty quickly. People are even discounting, at some level, how they even value advice. 'I'll just buy this basket of ETFs; what could be wrong with that?'
"The biggest change and opportunity is investors looking to invest according to their values, and managers' ability to integrate ESG analysis to improve investment research and improve risk adjusted returns. The next generation, and even the older generations, are understanding that, whether you completely buy into global warming or not, there are trends. People want to make a difference and leave the world better. They want to be consistent with their values. I think that's consistent with social networking and people wanting to be with people like them and live and breathe their beliefs."
Gofen & Glossberg, Chicago
• Charles S. Gofen, principal: "One of the biggest challenges facing investment advisory firms today is disintermediation. People can invest by themselves rather than hiring an investment professional to manage their money. They can use exchange-traded funds to achieve diversification at a low cost, and as of – I don't know, last week? — they don't even have to pay trading commissions anymore.
"Our response to this challenge is to continue to address the specific goals and needs of each client. How much portfolio risk should a particular individual take on, given her unique circumstances? Which savings strategies are most efficient to put money away for future college tuition payments? What's the optimal asset allocation for a nonprofit that needs to withdraw 5% from its investment portfolio every year just to make budget?
"We can offer wisdom on a wide range of financial issues that most people don't have the inclination, energy and expertise to determine for themselves."
Salem Investment Counselors, Winston-Salem, North Carolina
• Dale Brown, senior executive vice president: "Today there just seems to be a tremendous focus on what the market is doing today, tomorrow or next week, and I think that leads people into investing for the wrong reasons. I freely tell folks that I don't know what the market will do tomorrow or the next day, but if we're doing this for the right reason, 10 or 20 years from now the market will be higher, and probably much higher, than it is today.
"I just fear there's ... not enough focus on where we want to be in the years to come. I'm not sure I'm seeing anything changing about that right now. You'll see it when a company announces earnings. If earnings are expected to be 98 cents a share and they turn out to be 97 cents – or even just 98 – you'll see the stock drop 10%. I find that frustrating because it shouldn't make any difference, not to the extent we so frequently see today."
• David Rea, president: "I think the biggest challenge ... will be expenses and fees. We pick up business from the banks and the big firms that charge 1% and then throw their clients into mutual funds that charge another 1%. And it just seems unfair, particularly in a low interest rate environment. We've always kept our fees pretty low. I think that's going to be a challenge, particularly for the big firms. We just saw Schwab go to zero commissions. I think pricing will be a pressure."
Tom Johnson Investment Management, Oklahoma City
• Cory Robinson, vice president and portfolio manager: "[A] challenge for financial advisors and their clients is going to be generating enough income for retirement. While the Fed has likely helped the economy with low rates, they are effectively punishing savers by keeping interest rates below equilibrium levels.
"It used to be that you could invest in a conservative bond portfolio and generate 4% to 5% in annual income; now, that same bond portfolio generates somewhere around 2%. That's a pretty significant gap that has to be made up somewhere by taking on additional risk, reducing spending or finding less traditional sources of income.
"With something like 10,000 baby boomers retiring every day, I foresee that there will be a scramble for income-producing assets over the next few years."
Wescott Advisory Group, Philadelphia
• Grant Rawdin, founder and CEO: "Forgetting the true value of a financial advisor — meaningful, personalized, sophisticated advice across all disciplines. Counsel the person, not the portfolio."