John Lefferts' Blog

Tuesday, October 7, 2014

Living With Gray

As time marches on I find myself living with gray both figuratively and literally. I've reached the ripe age where, if one has hair left, it begins to turn gray. It's starting around the sides on the temple of my head and while my wife tells me it looks attractive, for me, not so much. Aside from dying my hair to look like I just applied shoe polish to it, I guess I'm just gonna live with it. But that's not the only gray I'm having to live with. I'm cursed with one of those director/controller personality types. My favorite themes over the years have been "cut to the chase" or "what's the bottom line" and "no surprises". I know many business people can relate. In an effort to bring clarity to everything, I would have a tendency to see things as absolute; Black or white, good or bad, liberal or conservative, communist or capitalist, chocolate or vanilla, stock or bond, term or permanent, FINRA broker or RIA Advisor, etc...But whether it's a tempering/maturing of my persona or a true shift in business and political ideology, things no longer seem absolute anymore. It's more an era of ambiguity. Things that were once black or white have become a bit of looks more gray to me than ever before.
As American's we have the true privilege of choice. But I'm afraid, as we Americans tend to do, we've taken choice to an extreme. In 1965, there were 170 mutual funds. Today, there are over 8,000. In 1990, there were 20 share classes. Today there are over 1,000. There was only 1 lone ETF as recently as 1993. Now there are thousands and increasing daily. It's choice on steroids and a philosophy of more is better. But the choices have left most of the investing public simply dazed and confused. 

With the distribution of these financial products, there has been a similar evolution. In the 60's, you could buy your life insurance from an agent licensed to sell only insurance. And they had two products to sell; Whole Life or Whole Life. Want stocks or bonds?; simply call your stockbroker and that's what you got, and all you got. Then banks gave you loans, checking accounts and passbook savings accounts. That was the extent of financial planning; Simple, compartmentalized, all there in black and white. 

So here we are today, living with financial services regulations designed for the simple black and white 1965 like-era, with the reality being far more complex than that. Insurance agents are no longer just insurance agents. Many are licensed series 7 for securities and series 65 for Investment Advisory services. The same goes for every other form of financial services discipline. Regulations as they stand today are as fitting as the proverbial square peg in a round hole. It's screaming out for a complete do-over and realignment.
But the issue is far more complex than a simple do-over. The American investor wants afinancial advisor who can address all their needs in a coordinated and balanced strategy. For lack of a better term, let's call that financial planning. The irony is that as it exists today, there are no clear cut regulations that apply to a true financial planner who holistically addresses ALL of their client’s spectrum of needs. Planners are forced into multiple boxes as an SEC/state investment advisor, FINRA registered rep and state regulated insurance agent. As mentioned before, it’s no longer that black and white. As the business organically harmonizes, the traditional separation between Wires, Ins. Agency, IBD and RIA are also blurred giving rise to new integrated business models across all channels serving the “ensemble” firm (see graph above thanks to LIMRA). Older generation advisors and firms (ie. traditional) tend to be solo practitioners and product driven. Contemporary advisors and firms are multi-disciplined and embrace teaming in groups that cover the total needs of their clients including advice, investments and insurance. This shift will only become more pronounced as the new generation replaces the old in time. How is it that the regulators can’t see that? Oh yeah…I forgot; special interests groups lobbying to protect their outdated turfs.

As much as regulators, government and outdated business models want to turn the clock back to 1965 and re-enact Glass-Steagal-like boxes to fit entities into, the fact is those days are long gone. And as much as I'd like to see a complete do-over of the regulatory system moving towards clarity- black and white, the reality is that we are continuing to move further into the gray unknown. There is no more business as usual. The future winners will have the ability to deal with change and the increasingly ambiguous world we live in. 
So maybe it's a good thing to be going gray and viewing the world with more flexibility. There are no easy solutions and having an open mind allows one to move in the direction the business is headed rather than being stuck in dated ideology like wearing concrete boots. I'm embracing my grayness, and with the way this government is handling things, I'm getting more gray hairs every day! 

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