Joe Duran

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Joe Duran

The biggest losers and winners of 2017

Independent advisers and investment clients fared much better than the DOL rule and robo platforms

Jan 2, 2018 @ 12:16 pm

By Joe Duran

Politics and the presidency have seldom played a more dominant role in our popular culture as they did last year.

Despite the wall to wall coverage of the White House, 2017 turned out to be a far calmer and less disruptive year in the financial markets and the wealth management industry than many anticipated. In the background, our world continues to shift and 2017 turned out to be an intriguing one in many ways.

In thinking about the past year, we present our perspective of the biggest losers (and winners):

1. Loser: The DOL Rule. It's not clear where we sit with the Department of Labor rule that would have applied a fiduciary standard to all retirement plan participants.

The implementation, which was meant to occur in April 2017, would have been a dagger in the heart of many independent broker-dealers, their brokers and the commission-based firms supporting them. It was at center stage as the major catalyst to change the industry coming into the year. Instead, it's become a distraction lost in some limbo few can keep up with.

Winners: Independent reps, independent broker-dealers and the folks that sell products to them.

(More: Time for SEC to take fiduciary baton from DOL)

2. Loser: The Robos. Many have successfully raised more capital at nosebleed valuations over the past 18 months, but their businesses have never been in greater jeopardy. This year, they saw more competition than ever from all quarters. New firms making splashy entries (like Ellevest) and niche players (like Shariah-compliant robo portfolios) alike have crowded out the independent market.

More importantly, established retail brands are in on the craze: from the custodians to the wirehouses, everyone established a robo this year. With none of the original robos having reached critical mass, many are scampering to adjust business models to add humans and move their clients up the value chain.

Winners: Investment clients benefitting from ever-collapsing investment costs.

3. Loser: Active Management. They have been in the doghouse for a decade, and this past year proved no different.

In a market where all boats go up, those that charge the most invariably underperform. Indexers like BlackRock, Vanguard and DFA are taking almost all the net new assets in the retail investment industry. It will take years to shift perception away from the power of indexing.

Winners: Indexers and the folks that love them.

(More: RIAs hedge market risk with actively managed funds)

4. Loser: Volatility. It has never been this low for this long. For the first time ever, we've gone over 350 days without a decline of 3% in the S&P 500. It's been years since we had a 10% decline.

When a meaningful market fall arrives, it's going to come as a shock to everyone. In the meantime, the free lunch continues. 2017 turned out to be a tough year for anyone adding tactical overlays to their portfolios.

Winners: Buy-and-hold investors and their advisers.

5. Loser: Adviser Acquirers. It's a sellers' market with lots of new firms raising capital to purchase individual practices, debt financing readily available and the banks re-entering the market after years of hibernation.

That's pushing prices up and heating up competition. We went through this in the mid-2000s and many of the over-levered and highest-price buyers went out of business during the recession. But in the meantime, it's a good time to be an independent adviser looking to sell.

Winners: Financial advisers with sustainable practices.

RIP 2017

In many ways, we all have a lot to be thankful for this year. Investors experienced a fantastic market with almost all asset classes climbing while experiencing historically low volatility. Even though our jobs are most enjoyable when the financial markets perform well for our clients, these are also the times we should be preparing for when things are not quite so great.

Let's appreciate a fantastic year and toast the good times but also replenish for the tougher times when they eventually arrive — and they always do. I hope you enjoyed your holidays and I wish all of you a prosperous and joyous 2018!

Joe Duran is founder and chief executive of United Capital. Follow him @DuranMoney.


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