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Michael E. KitcesMSFS, MTAX, CFP®, CLU, ChFC, RHU, REBC, CASL
Partner. Director of Research, Pinnacle Advisory Group
Publisher. The Kitces Report, www.kitces.com
Blogger. Nerd’s Eye View, www.kitces.com/blog
Twitterer. @MichaelKitces, www.twitter.com/MichaelKitces
Five Industry TrendsReshaping Financial Advice11.13.2019 | Money Management Institute
Handouts/Additional Materials at: kitces.com/MMI19
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• The Luddites
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Five Industry Trends
• Cotton Production – Before & After
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Technology
The Client ExperienceThe Search For New MODELS
Crisis Of DifferentiationThe Great Convergence
Five Industry Trends
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Five Industry Trends
“Financial Advisor” of the 1970s/80s: STOCKBROKER!
Handouts/Materials: kitces.com/MMI19
Source: “A Century of Stock Market Liquidity & Trading Costs” by Charles Jones
Five Industry Trends
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Five Industry Trends
• “Financial Advisor” of the 1990s – MUTUAL FUNDS!
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Five Industry Trends
• The online Mutual Fund Supermarket!
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Five Industry Trends
• “Financial Advisor” of the 2000s –ASSET ALLOCATION!
Source: “Moss Adams & Investment News Industry Benchmarking Surveys”
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• But now technology is commoditizing it again!
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• What Is The Value You’ll Add On Top?
Technology & Financial Advice
Trading
Rebalancing
Tax Loss Harvesting
Facilitating Saving
Trading
Rebalancing
Tax Loss Harvesting
Facilitating Saving
Exploring Goals
Financial Planning
Behavior Change
Handouts/Materials: kitces.com/MMI19
Technology
The Client ExperienceThe Search For New MODELS
Crisis Of DifferentiationThe Great Convergence
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Handouts/Materials: kitces.com/MMI19
• Once upon a time, commissions were for products, and fees were for advice
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• The Great Convergence is triggering regulationSEC Temporary Rule:‘Certain Broker-DealersDeemed Not To BeInvestment Advisers’
India Bans UpfrontCommissions on
Mutual Funds(2009)
Future of FinancialAdvice (FOFA) ReformsProposed in Australia
(2012)
FOFA Finalized,CommissionsBanned(2013)
Canada’s CRM2Imposes NewTransparency Rules(2016)
DoL FiduciaryRule Re-Proposed
First DoLFiduciary Proposal
Birth of theHybrid RIA
(2008)
FPA WinsSEC Lawsuit
(2007)
DoL Fiduciary RuleVacated in Court(2017)
Australia’s HayneCommission ExtendsFiduciary Rules(2018)
1999 2000 2005 2010 2015
Retail DistributionReview (RDR) in UKBans Commissions(2014)
South Africa BansCommissions forFinancial Advisors
DoL FiduciaryRule Finalized(2016)
SEC Proposes Regulation Best Interest(2018)
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Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• Regulatory change is not a cause, it’s an effect!– …of the Great Convergence!
• The Fiduciary is a global phenomenon– …and the trend is towards less conflicted compensation
• But when we all converge towards the same business model, guided by the same regulation…
Handouts/Materials: kitces.com/MMI19
Technology
The Client ExperienceThe Search For New MODELS
Crisis Of DifferentiationThe Great Convergence
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Five Industry Trends
• The emerging Crisis of Differentiation
Source: FPA's Research & Practice Institute. "Defining and Communicating Your Value 2016: Trends in Practice Management Whitepaper"
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• We’re all going after the same (few) clients…
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Five Industry Trends
• But there just aren’t many baby boomer delegators with money!
Source: “Spectrem Group, Market Insights Report 2016”
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• But not everyone is a delegator!
Source: “Forrester Research”
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Five Industry Trends
• How many baby boomer delegators are there…?– If 1/3rd of households are delegators…
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Technology
The Client ExperienceThe Search For New MODELS
Crisis Of DifferentiationThe Great Convergence
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Five Industry Trends
• The search for new business models
Net WorthRetainer Fee
Pays 1%of Income
Hourly FeeMonthly Subscription Fee
Annual Retainer FeeNet Worth + Income Fee
Cannot AffordFinancial Advice
Pays 2.5%of Income
Hourly FeeMonthly Subscription Fee
Annual Retainer FeeNet Worth + Income Fee
Handouts/Materials: kitces.com/MMI19
Technology
The Client ExperienceThe Search For New MODELS
Crisis Of DifferentiationThe Great Convergence
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Five Industry Trends
• The Experience Economy
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• The Financial Planning “Experience”
Five Industry Trends
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How To Survive(And Thrive)Serving the
Advisor of the Future
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• The Passive ETF Mirage
Finan
cial Advisor
Strategy Adoption
100%
80%
60%
40%
20%
0%2014 2015 2016 2017
Passive Partially Active Active
AdvisorAdoptionOf PassiveIs Declining!
Source: FPA 2017 Trends In Investing Survey
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Annual Expense
2.5%
2.0%
1.5%
1.0%
0.5%
0%
Five Industry Trends
• Advisors Disintermediating Mutual Fund Managers
TraditionalMutual Fund
Mutual FundManager Fee
FinancialAdvisor’s
CommissionTrail
Financial Advisors asInvestment Manager
FinancialAdvisor’sManager
Fee
UnderlyingETF Costs
Client saves0.9%/yearIn total cost!
Handouts/Materials: kitces.com/MMI19
FinancialAdvisor
Five Industry Trends
• Financial Advisors: From Distributor To GatekeeperAdvisor as Product Distributor
AssetManagers
FinancialAdvisor Client
1%1%1%1%
Advisor Providing Investment Advice (Product Gatekeeper)
Client
1%
AssetManagers
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Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• Re-Writing Industry Channel Segmentation
Fee-For-ServiceFinancial Planning
Channels: RIA, Hybrid RIAProducts: TAMPs, SMAs
InvestmentManager
Channels: RIA, B/D Rep-As-PMProducts: ETFs, Individual Stocks/Bonds, some actively managed mutual funds
Needs-BasedSelling
Channels: Broker-Dealer, Insurance B/DProducts: Mutual Funds, SMAs
AssetGatherer
Channels: RIA, Broker-DealerProducts: TAMPs, SMAs, Mutual FundWraps, Individual Funds
Financial Planning-Centric Investment-Centric
CLIENT APPROACH
VALU
E PROPOSITION
Ad
vice
-Ce
ntr
icP
rod
uct
-Ce
ntr
ic
Handouts/Materials: kitces.com/MMI19
Five Industry Trends
• The Cross-Roads Of Wholesaler Value-Add
InvestmentProduct Expert
PracticeManagement
Expert
PortfolioDesign Expert
If you want to addvalue, you have to know
more (than us)
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@michaelkitces
Questions?Handouts & additional materials:
www.kitces.com/MMI19
Contact: [email protected]
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