Practice Management

Adviser Independence Trends Impacted By Fiduciary Uncertainty

“Regulatory pressure increases the appeal of independence and the need to shift the active versus passive conversation,” according to a new report from Cerulli Associates. 

By John Manganaro editors@strategic-i.com | February 27, 2017

The February 2017 issue of The Cerulli Edge – U.S. Monthly Product Trends Edition finds about half of U.S.-based financial advisers view the registered investment adviser (RIA) business model as a sensible solution to increased regulatory pressure.

Even as the Trump administration makes broad pledges to roll back financial regulations, including both Dodd-Frank and the Department of Labor (DOL) fiduciary rule, advisers are feeling anything but certain about what the future may hold. Beyond the quickly shifting picture in Washington is the constant pressure of participation-driven litigation and the threat posed by emerging advisory technologies that, at least according to some, threaten the traditional approach to one-on-one advice, whether fee- or commission-based.  

According to Cerulli’s research, nearly two-thirds (64%) of broker/dealer affiliated advisers “plan to shift more of their business toward fee-based advisory models in an attempt to be better positioned to comply with the conflict of interest rule, if it is implemented.”

Cerulli posits that, “as advisers become increasingly comfortable operating in a fee-based environment and embrace fiduciary duty,” they may be more likely to consider moving away from commissions-based business models associated with the B/D channel, in favor of the RIA approach. By the agency’s own admission, the DOL fiduciary rule was designed to push advisers forcefully in this direction. This is why close to half (47%) of all advisers “believe that the RIA business model will become more appealing post-DOL conflict of interest rule.”

As adviser business models shift there is also an ongoing reassessment of investment approaches. Cerulli finds “mutual funds” as a broad asset category “witnessed their first positive month of flows ($19.3 billion) since May 2016.”

“Assets for the vehicle grew 1.6% to $12.7 billion in January,” Cerulli reports. “ETFs gathered flows of $40.3 billion in January, building upon a very successful 2016. January flows combined with positive capital market performance led to ETF asset growth of 3.5%, ending the month above $2.6 trillion.”

The report concludes that “cost is a key investment consideration, particularly when focusing on long-term outcomes, but advisers and investors must incorporate other elements into their thinking.”

More information about obtaining Cerulli Associates research is available here