What They Don't Tell You About the Future of Financial Advice
I am sure that you have heard of the fiduciary standard in some form of fashion. It is the standard that fee based advisors are held to that says that the advisor will put your best interest in front of the advisor's own interest. It is the standard.
The commission side of the business has never been held to that standard. Regulators are working diligently to pass new regulations to hold the entire financial advisor community accountable. I don't have a problem with that. Holding the best interest of your clients ahead of your own should be the standard.
Unfortunately, regulators have taken a basic rule and are over regulating it (like they do). Really, this could be solved in a 10 page document as opposed to 100's of pages. The potential problems will create a ripple effect within the industry. However, that is not the point of this piece. It is the future of financial advice they don't tell you about. A little education that you might want to put in your arsenal.
As real regulations slowly go into effect so are these changes within the industry.
1) Smaller accounts will be let go - Advisors are already starting to cut small accounts lose. To the brokerage world, they are too much of a liability. It is a shame that the industry is taking this turn. People small or large accounts shouldn't be seen as a liability.
2) Commissions vs. Fees - As commission fees start to dry up, advisors, in order to survive, will start to convert their accounts from commission to fees. What are they bringing to the table to earn that fee? What is the value added? The client may or may not think to ask that question. The industry shifting to fee basis from commission basis seems like a plausible solution to the big brokerage houses. However, they will find that it creates a problem. Is the advisor, who is not providing value for the fee, all of the sudden violating the fiduciary standard?
3) The financial services industry will focus the public completely on fees - Fees are not necessary according to the industry nor are financial advisors. If that weren't the case there wouldn't be such an assault on the industry through over regulations. Fees are a part of the business. The mutual fund industry will villainize anyone with a fee practice. The problem with this debate on fees is that they only tell one side of the story. It is once again Pop Culture Finance telling investors how to believe.
What is the bottom line? It really comes down to four things. First, you have to know that the financial services industry has an agenda and it is anti-advisor based. Second, brokerage companies are scrambling to make changes none of which are really in the best interest of the investor. Third, there is a place for all types of investments and not just one kind. Finally, make sure your advisor has your best interest in mind. An advisor shouldn't need new rules to make that the case.