Five Trends For Advisors

This article in Financial Advisor magazine does not contain anything new.  Rather, it collects ion one place a number of trends in the advisory community that have been tacking place and developing momentum over the past few years, and discusses them in one place.  That the business of advising is evolving is both obvious and good, and these rends are serving to improve the practice of advising individual investors.  The five trends:

• Fee compensation rather than commissions - This has been on its way for a long time, and the changeover may never be complete.  There are certain clients for whom a gee-based relationship is not the most beneficial.  However, for most clients, a fee-based model works better than one based on commission for so many reasons - alignment of interest, taxes, transparency - that it seems a natural way of doing business.
•  A fiduciary standard of care - Another trend that has been developing for a long time, but in a much more covert manner.  Nearly all of the pressures on practitioners, from regulatory to competitive, have been pointing the industry in this direction. The codes of conduct promulgated by the professional organizations all promote behavior worthy of a fiduciary, even of they do not name it.  Service providers, such as broker/dealers and custodians, are offering packages that address the demands of clients for assurances that their interests are primary.  Even the trend toward fee compensation supports such a rigorous standard.  The major factor delaying a full scale adoption is the lack of mechanisms for managing the tort risk of the heightened responsibility.
• Comprehensive financial planning - Providing comprehensive planning for clients is not so much a trend as it is the realization of a vision.  The leaders of the industry have always conducted their business in a way that promotes sound financial decisions across the entirety of a client's life, not just investments, insurance, or taxes.  Technology is allowing  practitioners to access specialized expertise  in a cost-effective manner to deliver advice that considers all facets of a client's financial life, both currently and in the future.  Clients and other professionals are more willing to form teams to help the client achieve his goals.
• Setting reasonable expectations - There was a time when advisors competed on performance - the highest yield product, the best performing mutual fund, the most recognizable research staff - and a good portion of the market was willing to follow the lead.  More recently, the marketing thrust has shifted, and managing expectations and keeping promises weighs much more heavily in the decision making process. 
• Outstanding service - Really, any advisory firm that is fulfilling the first four points can be described as providing outstanding service.  Setting achievable holistic goals, meeting them while putting the client's best interest first, and getting paid a reasonable and transparent fee reflecting the time, effort and expertise of the advisor is the very model of an effective relationship.

I can';t say that I agree that advisors must adapt their practices to these trends.  Carriage manufacturers and buggy whip makers are still in business and make some money.  But they are now specialty products made for a small market niche, rather than a mass market operation.  Likewise, there will likely be a market for commission based, product oriented advisors for a select group of individuals.  However, the larger market will be attracted to sophisticated professionals whose practices reflect the above characteristics.