When it comes to RIA growth, all is not what it seems

When it comes to RIA growth, all is not what it seems
The continued accrual of AUM by the RIA channel masks some hard truths. First, the success of the independent advisor industry remains very much linked to the failures of the traditional brokerage model. Registered reps continue to flee an environment they see as oppressive and poorly aligned to client interests. Second, while robos are not yet taking much business from RIAs, they are exerting pressure on fees. The emergence of RIA roll ups like HighTower speaks to a much needed focus on scale. Sure, there will always be the man-and-a-dog shop with its loyal clientele. The most skilled and strategic advisors still can name their price, with value add services like financial planning and wealth transfer commanding a premium. That said, it won’t be long before the investments-focused customer resists paying his human advisor for much beyond running the machines. Sound futuristic? Well, it’s what many advisors do today: they use an algorithm to generate an asset allocation based on client goals, followed by a yearly check in. The real wonder is that clients pay 1% for this kind of hand-holding.

In the fiduciary fight, key players are biting off as much as they can chew

In the fiduciary fight, key players are biting off as much as they can chew
In my last post, I note the acceleration of Department of Labor (DoL) efforts to bring greater transparency to the DC business. The latest guidance from DoL attempts to boost clarity around sponsor obligations pursuant to the sale of annuities. This guidance is important because to date, regulatory attention has fallen disproportionately on the accumulation side of the DC business. Helping participants to successfully manage the payout function is a noble and (as I discuss in my recent report on de-accumulation) challenging goal. Time is of the essence if the US is to forestall a doomsday scenario of retirees outliving their savings. At the same time, it is important to keep in mind that economics are not the only consideration driving the DoL push. Rather, the newfound urgency underscores the Department’s desire to put its imprimatur on an issue that is being tackled by multiple actors (e.g. Treasury; the SEC, which announced last month its compliance-focused ReTIRE Initiative; and lobbying groups such as SIFMA and NAIFA) and from multiple standpoints. In particular, a torrent of litigation (the capstone of which was the Tibble vs. Edison verdict) appears to be shifting decision power to the courts. Legal actions are also shining a spotlight on fees. This presents a cart-before-the-horse problem for DoL, in that excessive fees are an issue that a uniform fiduciary standard is supposed to address. Having assumed the mantle of defined contribution crusader, the DoL risks falling behind events.  The pressure on DoL will only become more acute as we enter the twilight of the Obama administration. The upshot? Look for a wave of bulletins and other forms of guidance from the DoL, particularly in the wake of the upcoming August hearings. While the fiduciary debate to date has gotten less attention than it deserves, it will rise to the top of the political agenda this fall, despite resistance from industry lobbyists. Indeed, given the weight of the government and private sector entities (among them the AARP) behind reform efforts , the end result may actually have teeth.