Regulatory burdens top adviser business concerns

Advisers also worry about attracting new clients in the future, survey shows

Apr 30, 2015 @ 1:26 pm

By Liz Skinner

Compliance with evolving rules around fiduciary duty, advertising and cybersecurity top the list of risks that financial advisers worry will hurt their businesses in the future.

Advisers said the greatest risk to their firms is the difficulty of compliance with heightened regulations, according to an InvestmentNews survey of 544 advisers.

About 34% of advisers rated increased regulation, 23% reported challenges to attract new clients, 13% rated generational wealth transfer, and 11% said difficulty attracting next-generation clients as the top demands on their businesses, results of the online survey this month showed.

Less than 10% of advisers chose one of these as a top business concern: succession planning, keeping up with technology changes, pricing of services issues and spousal wealth transfer.

Source: InvestmentNews survey of 544 advisers


The main concern is the Labor Department's fiduciary duty proposal, said Michael Schwartz, owner of Schwartz Financial. Earlier this month, the agency proposed a controversial rule designed to limit conflicts of interest by requiring advisers to act in the best interests of clients when working with 401(k) and individual retirement accounts and other retirement vehicles.

“I have no problem with disclosure, but I don't need a third party telling me what my client does and doesn't need,” Mr. Schwartz said. “If I can't make enough money to stay in business, then I will be out of the business.”

Concern about regulation is much more of an issue for advisers affiliated with independent broker-dealers, with 43% of these advisers ranking regulations as the top risk for future business, according to the survey. About a quarter of advisers affiliated with registered investment advisers and 21% of wirehouse or regional-brokerage advisers ranked compliance as the No. 1 concern.

(More: Expect tumult for broker-dealers if DOL fiduciary plan goes through)

“Regulatory overload is a fear financial advisers have long had, and probably reached a apex during the first couple of years immediately following the financial crisis,” said Matt Sirinides, an InvestmentNews research analyst.


Attracting and retaining clients also tends to land high on lists of adviser business concerns, as it did with this survey, he said.

“Business development in general is what I worry most about in the future,” said Mike Johnson, principal with Moneta Group.

Most of his clients are baby boomers or older.

“They tend to appreciate and demand financial advice, while the millennials are more of a do-it-yourself group of people and they may not appreciate the value of professional advice as much,” he said.

William Morgan, president of Herbein Wealth Management, said attracting clients seems to be getting more difficult.

“Getting people to think about talking to someone else and getting a second opinion is becoming increasingly difficult,” Mr. Morgan said.

The public also still doesn't differentiate between advisers and brokers, and certainly doesn't recognize the different standards of care that each group is obliged to provide to clients, he said. RIAs pledge to act in the best interests of the client, while brokers are held to a suitability standard of care.

“Everyone is calling themselves an adviser these days,” Mr. Morgan said.


In fact, the quality of advice is precisely what one industry executive sees as an essential business issue for advisers in the future.

HighTower Advisors chief executive Elliot Weissbluth said “mediocre advice givers” who don't have the experience or sophistication to offer appropriate recommendations and plans give the industry a bad name and can hurt clients.

“If you get [medical] advice from a poorly trained, incompetent physician, that can be pretty devastating,” Mr. Weissbluth said. “I think that applies to our industry, where if you get bad advice from a poorly trained, mediocre financial adviser, that can be pretty devastating.”

Mason Braswell contributed to this story.


What do you think is the top risk for advisory businesses in the future?

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