Several panelists at an opening session of the Tiburon Summit Tuesday spoke to what they saw as the “commodification” of investment advice, and how advisors are in danger of seeing their businesses erode if all they are doing is selecting and rebalancing portfolios.
“There are lots of online solutions that start as low as 15 basis points,” said Steve Lockshin, the chairman of Convergent Wealth Advisors. “For no money you can get asset allocation, get ETF selection, and if they don’t want to talk to someone, they can do their work very inexpensively.” The worrisome trend is the industry still has clients paying premium prices for commodity services, and “that’s going to end. We’re going to get the rug pulled out from underneath us and it’s going to happen quicker than we think,” Lockshin said.
Michelle Watson, the CIO of First Republic Investment Management, agreed. “A lot of things we work hard to do, you can get pretty easily. What that means for companies in wealth management is we’ll have to change the way we think about service. We’ll have to become more customized. The customization is key.” One way to engage clients beyond the basics is to find “innovative ways to engage” the client, for instance, around impact investing and “the big ideas that will change the world,” like energy and electric cars. “And of course, you have to be tax efficient,” she said.
Mitch Caplan, the CEO of Jefferson National, suggested firms should capitalize on what makes them unique. "iIf revenues are under pressure, figure out a way to charge for your intellectual capital."
Both Lockshin and Watson agreed that service was the differentiator, meaning the advice and information that go beyond basic financial management. “Transparency will be key,” Watson said. “But it puts you at risk. It is a relationship business. The only way they will trust you is if you are on the same side of the table.”
Lockshin, who recently published Get Wise to your Advisor; How to Reach Your Investment Goals Without Getting Ripped Off, is on a mission to educate the industry and the public about the difference between conflicted and non-conflicted advice, and pulls no punches when talking about commission-based business.
“If you have a conflict, call yourself a broker. If you don’t have a conflict, call yourself an advisor,” he said. But don’t expect regulators to clear things up. “The fiduciary versus suitability argument is an embarrassment to our industry. Just do the right thing for the client and get paid for it.”
