Advisor Business Models Under Pressure: Financial Advisors' Daily Digest

by: SA For FAs

Summary

John Lohr argues that financial advisors face a perfect storm of pressures that will drown out the relative ease they enjoyed in the past.

Vishal Khandelwal discusses the pitfalls of the boredom of the bull market.

Hamlin Lovell, CFA: Active management is alive, thriving and adding value - in overlooked areas.

The trend is not a financial advisor's friend. So says financial services industry veteran John Lohr in an article that may cheer DIY investors, but may not do much to lift the spirits of many investment professionals. Here's how Lohr eloquently puts it (read the whole article here):

"The days of the traditional financial representative hanging an investment advisory shingle out, giving a client a 10-question questionnaire, putting the client in a couple of mutual funds and sitting back and collecting 1% are going, going... gone. I give it two years. I also say 'good riddance.'"

I think John is by and large correct, including his conclusion that the riddance is a good one, but I will also offer a few thoughts to tamp down the merriment of DIY investors and encourage financial advisors.

First, how can it not be true that advisors are facing fee compression and a thinning of the ranks? Just look around you. The high-tech Internet economy has made zero the standard default price, thereby wreaking havoc with established business models. But it’s happened in stages. Booksellers and media were taken out first via Amazon (NASDAQ:AMZN) and digital competition, and then robots started knocking out factory workers. Now robo-advisors are knocking out human ones, among other forces cited by John in his article.

Second, when I see the sometimes harsh anti-advisor comments in online discussion, my first thought is that there is a high degree of likelihood that the commenter would not withstand the same level of scrutiny were details of his profession made known. That is today’s economy.

But I’d like to end this discussion on a positive note. There’s a saying usually applied to the field of statecraft that "the enemy of my enemy is my friend." Many individual investors - including those who have no use for financial advisors - eventually come to see themselves as their own worst enemies and therefore come to see the strategic value of allying with a financial advisor (I’m taking a little metaphoric license here - hopefully you get the idea).

That said, the modern economy is increasingly less forgiving of professionals who do not demonstrate mastery of their field. As for top-notch financial advisors, they have nothing to fear.

Please share your thoughts in our comments section. Meanwhile, here are a few advisor-related links for today: