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Advisors in a Good Spot

The financial-advice industry is being challenged—for the best.

Tricia O. Rothschild, CFA, 06/08/2017

What day is it?” asked Pooh.
“It’s today,” squeaked Piglet.
“My favorite day,” said Pooh.
—A.A. Milne

Full disclosure: I’m an optimistic person. I never lose my keys, for example, although sometimes I just can’t find them for a few days. My optimism extends to my view on where our industry is heading in terms of delivering high-quality financial advice—things are looking up!

But unlike my personal optimism, which admittedly could be seen as avoiding raw reality (I do end up needing to replace my “not lost” keys at least once a year), my optimism in the state of financial advice is justified. The industry is demonstrably stronger now than it’s ever been.

There are three key reasons for why I believe this.

First, the bar has been raised for all of us to deliver comprehensive—and comprehensible— low-cost financial solutions to investors of varying wealth levels. Just like the advent of mutual funds brought Wall Street to Main Street, the emergence of automated advice solutions (aka robo-advice) is bringing lower-cost, user-friendly investment portfolios to people who would never pick the word investor out of a list of possible personal attributes.

Second, those of us who are engaged in delivering professional financial services to individuals have more tools than ever at our disposal. No need to key in data by hand from multiple statements, or have an assistant re-enter client names, phone numbers, and birthdays from a financial-planning software application to a client-proposal software tool. Even as fee pressure increases, a suite of well-integrated technology solutions can deliver efficiency gains and increase advisors’ ability to handle significantly more households, which can more than offset the losses from fee compression.

Third, regulatory trends in most global markets are bringing the investor to the forefront of the financial equation. The fact that we’ve spent the past year even discussing something called the “best interest contract exemption” is evidence of the existential crisis the U.S. industry is dealing with. (Who thought that someone would really agree to sign a form that expressly acknowledges that their advisor is not acting in his or her best interest?)

Tricia Rothschild, CFA, is the director of Morningstar's securities research business.

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