As I read the financial media, tweets and blog posts, I am often reminded of the Charles Darwin quote here. It seems that while the financial services industry changes at break neck speed, many leaders hold onto the known and familiar for dear life. The business simply does not look, feel, operate and communicate like it did just a few short years back. Despite this, it appears that some very strong and intelligent industry players are doing everything to fight the very thing that will insure their survival; that is to embrace and respond to change. Social media is but one example of how our industry is becoming reshaped. With the exception of a select few like Mark Casady or Joe Duran, how many industry CEO’s have really embraced social media?
“Everyone thinks of changing the world, but no one thinks of changing himself.” -Leo Tolstoy
As we sit here today in late 2014, it strikes me that we’re going on 5 years since the current administration passed Dodd-Frank giving the SEC authority to rewrite the rules to potentially “harmonize” standards and supervision of those who give “personalized investment advice”. RIA’s initially applauded the move thinking it would force the dastardly brokers to their beloved fiduciary standard giving them a competitive edge. Brokers applauded the move thinking it would force RIA’s to a level playing field with FINRA supervision. But soon after, the turf protecting began and continues today which has contributed to the apparent stale mate status of any real regulatory change.
“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.” ― Albert Einstein
I find it interesting that the “fiduciary debate” has been framed as SEC RIA versus FINRA Broker. This while the business seems to be converging and blurring into one on a mass level. Not only that, but there are so many variations of those who give “personalized investment advice” that broad brushing them all as either RIA or Broker is as myopic as seeing only two colors; black or white. I’ve seen estimates that by 2015, 75% of industrywide (that means everyone) compensation is expected to come from asset-based fees, up from 59% in 2013 and 55% in 2007. I saw a recent stat from B/D leader LPL saying that 65% of new business coming in is from RIA’s or those entering the RIA model. Merrill Lynch, the oft cited arch enemy of the fee-only crowd requires every new hire to get a CFP. In time and with attrition, they’ll trend towards a majority holding the fiduciary rooted designation. And according to new research from Cerulli Associates, 90% of wirehouse clients received estate planning services in the third quarter of 2014. That compares to 83% of regional broker-dealer clients, 76% of bank clients, 80% of independent B-D clients and only 66% of RIA clients. So Wires are doing a better job at delivering broad based services than RIA’s? You wouldn’t know it by reading most industry media and pundits.
“Life is a series of natural and spontaneous changes. Don't resist them; that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.” ― Lao Tzu
The fact is that despite whatever the SEC, FINRA, DOL, etc. does or does not do with updating regulations, our industry is harmonizing organically at a pace faster than many of us have realized. The vocal minority at the extreme edges are fighting battles in a war that may have already been decided. Yes, whether we like it or not, we’re all in the same business and becoming more similar than dissimilar as the evolution progresses. It’s been said that you never change things by fighting the existing reality. To change something, build a new model that makes the old model obsolete. I think that now more than ever, the opportunity exists to build a new model that cuts a path between the old silo’d models of the past. It won’t be RIA only or FINRA B/D broker only. And it’s more than the current evolutionary trend as a hybrid. It goes a step further not by maintaining the status quo, but by responding to the changes that are reshaping the business as we knew it.
“Those who cannot change their minds cannot change anything.” ―George Bernard Shaw