Compliance, Fee Compression of Greatest Concern to Advisors

Fred Barstein

Remember the “good old days” when all that advisors had to worry about was getting new clients and selecting the best investments? Not any more.

According to a recently released SEI survey of advisors, compliance and fee compression are the twin towers that are of most concern to advisors. In fact, when asked what keeps them up at night, the most popular response was the DOL rule, with only 11% feeling like they are ready to comply.

Some advisors are ready to participate in a fee-based fiduciary market but most are not, especially if they still have ties to a traditional broker-dealer that must make firm-wide decisions to protect themselves against liability under the new DOL rule, though that may not benefit everyone.

Beyond compliance and the DOL rule, which are the tips of the iceberg, advisors, especially plan advisors, need to figure out how to run their businesses more efficiently as fee compression continues. According to the SEI survey, advisors’ greatest capital investment will be technology, with many looking to outsource non-client-facing activities like legal and compliance.

Not that client acquisition issues are going away. the efficacy of traditional methods like cold calling are dwindling, and most advisors know little to nothing about marketing and brand building. In addition, the competition is getting fiercer and the clients are getting smarter.

Investment selection is also trickier, as TDFs are garnering 60-70% of new DC contributions, and with professionally managed accounts expected to grow, leaving advisors to struggle to demonstrate their value with off-the-shelf TDFs.

No one said this was going to be easy – but neither did they say it would be this hard.

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