A new report from Cerulli Associates, “U.S. Advisor Metrics
2016: Combatting Fee and Margin Pressure,” suggests low-cost product demand and
regulation will only serve to amplify pricing pressure on the U.S. advisory
industry; yet there are also bright spots in the findings.
“Advisers are preparing for the impact that the Department
of Labor's Conflict of Interest Rule will have on their time and resources,”
Cerulli observes. “They must be ready to thoroughly document investment
decisions, as well as reassess the business risk of their practices under the
new regulatory environment.”
Even for firms that decide to wait and see what
a Donald Trump presidency will mean for the controversial rulemaking—sticking
with old business models and planning to rely on the Best Interest Contract
exemption—technical compliance does not ensure client satisfaction. Nor does it ensure partner firms will decide to continue business as usual.
“This rule may result in changing investment products, vehicles,
or account types advisers choose for clients to alleviate any appearance of
conflict of interest or negligence of their fiduciary duty to clients,"
explains Emily Sweet, senior analyst at Cerulli Associates. Advisers, asset managers and other service providers “must
be aware of the impact these reassessments will have on their partnerships … knowing
that the new regulatory environment encourages advisers to make
changes where the most obvious risks exist.”
Cerulli’s analysis suggests the adoption of low-cost
investing is appealing to investors in a supportive market environment, as they
can gain broad market exposure through vehicles such as exchange-traded funds
(ETFs). As such, advisers must be open to new investing approaches to maintain
relevance and trust with clients.
NEXT: Advisers open
to active and ETFs