In a recent ThinkAdvisor column, the always-insightful Michael Kitces offers his take on the three biggest challenges facing financial advisors this year.
In general the top three challenges — financial technology, differentiation and regulation — are the same as in past years, he notes, but the landscape is shifting significantly this year.
Financial Technology
This year we’ll see an explosion of financial technology for advisors, Kitces believes, with “an onslaught” on new firms offering advisors tools to compete with the robo-advisors that dominated the news in 2014. Look for new startups following closely on the heels of innovators like Betterment Institutional, Jemstep Advisor Pro, Motif Advisor and Upside Advisor, Kitces says. And some custodians and broker dealers will build their own solutions as well, following the lead of Schwab’s Intelligent Portfolios effort.
According to Kitces, the coming wave of new technologies may also finally fill two of the biggest gaps in the advisor technology market: the lack of a centralized Personal Financial Management (PFM) portal for clients and a centralized practice management dashboard for advisors.
Expect to see some new financial tech categories emerge as well, says Kitces, such as the next generation of trading and rebalancing software to create “Indexing 2.0” solutions that threaten to make mutual funds and ETFs irrelevant.
Regulation
Kitces tabs mandatory business continuity planning as “the surprise hot issue of the year,” based on proposed requirements by the North American Securities Administrators Association for state-registered advisors and by the SEC for federally registered advisors.
Add that to the imminent release of the DOL’s fiduciary definition proposal and the Camardas’ lawsuit against the CFP Board over their use of term “fee-only” in their compensation disclosures (which Kitces expects to go to trial by July), and you’re looking at a potentially watershed year in the regulatory area.
Differentiation
Fueled by a raging bull market, AUM and revenues are up over the last five years. However, Kitces notes, “the ‘growth’ is increasingly coming from just the tailwind of market returns.” Once those returns are backed out, he writes, “the underlying net organic growth rates are rapidly approaching 0%.” This suggests that there simply aren’t as many new client opportunities as in the past — putting even more pressure on advisors to differentiate themselves (something most have done poorly in the past) and driving a spike in mergers and acquisitions as advisors seek to leverage the platform and resources of a larger firm.
While Kitces’ post is mainly directed at FAs, much of what he says is directly applicable to plan advisors as well. Give it an 8 on the Must-Read-O-Meter.
