Morningstar Magazine - June/July 2017 - 49

Advisors in a Good Spot
The financial-advice industry is being
challenged-for the best.

ADVICE

Tricia Rothschild

"What day is it?" asked Pooh.
"It's today," squeaked Piglet.
"My favorite day," said Pooh.
-A.A. Milne
Full disclosure: I'm an optimistic person. I never
lose my keys, for example, although sometimes
I just can't find them for a few days. My optimism
extends to my view on where our industry
is heading in terms of delivering high-quality
financial advice-things are looking up!
But unlike my personal optimism, which admittedly
could be seen as avoiding raw reality (I do
end up needing to replace my "not lost" keys at
least once a year), my optimism in the state of
financial advice is justified. The industry is
demonstrably stronger now than it's ever been.

have more tools than ever at our disposal. No need
to key in data by hand from multiple statements,
or have an assistant re-enter client names,
phone numbers, and birthdays from a financialplanning software application to a client-proposal
software tool. Even as fee pressure increases,
a suite of well-integrated technology solutions can
deliver efficiency gains and increase advisors'
ability to handle significantly more households,
which can more than offset the losses from
fee compression.
Third, regulatory trends in most global markets
are bringing the investor to the forefront of
the financial equation. The fact that we've spent
the past year even discussing something called the
"best interest contract exemption" is evidence
of the existential crisis the U.S. industry is dealing

with. (Who thought that someone would really
agree to sign a form that expressly acknowledges
that their advisor is not acting in his or her
best interest?)
A Value Proposition Rebalance

Looking back over the past 20 years that I've been
in the industry, even optimists like me should
have been at least somewhat skeptical. Because
despite the investor-friendly intention and
potential of the mutual fund movement, the "value
stack" has been clearly weighted toward the
institution, not the individual. I remember being
a young mutual fund analyst in the mid-1990s
when I first heard someone in the industry refer
to a mutual fund as a product. The term was
appalling to me and my colleagues. A mutual fund
is not a tube of toothpaste!
But little by little, I started to understand how and
why fund manufacturers needed to create products
that would sell, that would be differentiated
from the competition, and that would attract
customers, and it started to seem that maybe the
toothpaste analogy was not too far off the mark.
And it's true, investing in a vacuum-or selling
funds as stand-alone products without
regard to actual client portfolios-is clearly easier
to measure and get compensated for. It's
easier to sell the tube of toothpaste than it is

Technology Enables Advisors to Serve More Households

There are three key reasons for why I believe this.
First, the bar has been raised for all of us to deliver
comprehensive-and comprehensible-
low-cost financial solutions to investors of varying
wealth levels. Just like the advent of mutual
funds brought Wall Street to Main Street,
the emergence of automated advice solutions
(aka robo-advice) is bringing lower-cost, userfriendly investment portfolios to people who would
never pick the word investor out of a list of
possible personal attributes.
Second, those of us who are engaged in delivering
professional financial services to individuals

ADVISOR

+

TECHNOLOGY

=

INCREASED EFFICIENCY
AND CAPACITY

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49


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