Updated Saturday, December 20, 2014 as of 10:48 AM ET

Latest Threat to Financial Advisors

You may have heard recently that the financial planning profession is under attack. Advisors are in grave danger of being rendered irrelevant, the Cassandras warn, by the online investment advisory platforms: the so-called robo advisors.

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Comments (5)
Investment consulting encompasses 2 crafts: (1) the development of advice and guidance and (2) the delivery of that advice and guidance. The 2nd craft is relationship management and it has evolved very nicely, leading to "trusted advisor." The 1st craft -- analysis and recommendations -- remains in the dark ages. This is the craft that Robos provide. Robos are masters at collecting data, but data is not information, and it is certainly not knowledge. The tools for the craft of analysis have actually improved but they remain on the shelf. Robos are using old tools in a very sophisticated digital framework, but then so are human advisors.
Posted by Ron S | Thursday, July 31 2014 at 9:45AM ET
I love that you aren't afraid to call out financial advisors in your "Broker's Sales Pitch" paragraph. I believe the biggest threat isn't online do it yourself investing sites, it's financial salespeople not acting in a client's best interest because either their employing B/D limits which products they can offer or they simply choose the product that pays the highest commission. The ridiculous behavior of selling financial plans embedded with product endorsements gives the financial planning a bad image, especially when those products are expensive or even inappropriate.
Posted by Greg L | Thursday, July 31 2014 at 11:50AM ET
Greg L and others that don't like/approve of the wolves who masquerade as sheep, I suggest that you start promoting the following in *all* of your marketing materials especially your online marketing materials and provide links to make it very, very easy for investors to find and read the information:

1) the AARP article, "The Two Faces Of Your Financial Planner" http://pubs.aarp.org/aarptm/20120405_PR?pg=57#pg57

2) the Frontline program, "The Retirement Gamble"
http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

3) page 40 of Arthur Levitt's book, Take On The Street, where it says, "How serious are the conflicts between brokers and investors? Serious enough that a former top official of a major brokerage firm confessed to me privately that he would not send his mother to a full-service broker."
Then, explain that full-service brokers are the following: Merrill Lynch/BOA, Morgan Stanley, Raymond James, UBS, Wells Fargo, and the like.
http://www.amazon.com/Take-Street-What-Corporate-America/dp/0375421785
Posted by Teresa V | Thursday, July 31 2014 at 4:02PM ET
Very well put Bob. We need to use the new technology to asist us, instead of running scared. We need to pull ourselves up by our socks and move up the value chain. These challenges are good in a way - we will not initiate changes otherwise!
Posted by Suresh S | Saturday, August 02 2014 at 4:21AM ET
Hi Bob,
Mike Chindamo here. Great article and writing as usual.
I am the Co-founder of Fautores Family Offices. I choose not to hide behind cryptic emails or addresses.

It is my opinion that much of what you describe is very accurate. There was even the time during the early 80's and late 70's when tax shelter write off deals were a factor that pervaded the industry. Those that sold them often were annoited with referrals from those clients that purchased and attained the tax benefits involved. As we all know many of those deals were a fail.

When I started in the business in 1978, one of the very first words of advice I heard was that "this is a fear and greed business". "If you want to build a great book of business, stress the fear and feed the greed!"
Another words, address human nature. Human beings for the most part are greedy, do not want to pay fees, want everything for nothing, and are fearful of missing a quick buck. This is certainly an over simplification of a more complicated array of cognitive biases.

However, nothing has really changed. There are those small groups of clients that do want to engage the services of a professional. Notice the word professional. To me this means that a professional will practice within the best interests of their client. That means practicing within a fiduciary standard.

I did not say "fee-only"! I said fiduciary standard. So, this is where we raise the bar. Either a practitioner seeks those clients that desire and will compensate those in a fiduciary practice or not. For those clients that seek and are motivated by fear and greed, they are no different than those that I descibed above. To attain the fiduciary level client, we need to be more educated as well as competent and offer a deliverable that surpasses the average level of service than what most of the industry provides.

This starts with good old fashion financial planning. Yes, written plans that also address a clients behavior as well. Who cares about how many pages the plan is. I have often heard that clients want a one pager, they will not read it etc. Yes most often very true. That behavior is the first indication that you are dealing with a client that is motivated by fear and greed. After that, it's the advisors choice. Tell that type of client what they want to hear or tell them the truth. That's the line where professionalism is earned. You as an advisor either chase the buck, feed the fear and greed or act like a good cardiologist and tell them they have a heart problem. Your choice. Professionalism is not anoited. It is earned through sacrifice, hard study and practice. It's your choice. You do it right, the problems go away.
Posted by Michael C | Saturday, August 02 2014 at 9:19AM ET
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