Joshua Mellberg is avoiding long-term contracts with technology providers and others until his advisory firm has judged the financial fallout of the Labor Department's rule on retirement advice, which begins to take effect three months from now.
J.D. Mellberg Financial also cut this year's research-and-development budget and put a freeze on hiring to make sure the hybrid advisory firm is prepared to handle any extra compliance costs or other ill effects of the fiduciary rule, which requires all financial professionals to offer retirement advice in the best interests of clients.
“We have made some reductions with anticipation of lots of expenses,” Mr. Mellberg said.
Implementation of the controversial rule top the list of issues advisers worry about for 2017, according to InvestmentNews' 2017 Outlook survey.
About 37% cite the fiduciary rule as the biggest issue facing the industry this year, while 22% chose regulatory overload in general as their greatest concern and 13% selected fee pressure, according to the online survey of 339 advisers.
The DOL fiduciary rule may even be contributing to a dampening of optimism about business growth prospects in the coming year.
Only about 15% of advisers said they were very optimistic about growing their book of business in 2017, compared to nearly a quarter of advisers who were this hopeful a year ago. About half of advisers are still somewhat optimistic about their firms' growth this year. About 54% said they will not be hiring any new staff in 2017, the survey found.
That unenthusiastic business outlook contrasts with advisers' rosier predictions for the U.S. economy this year.
About 70% of advisers expect the nation's economy to significantly or slightly improve in 2017. Only about 45% of advisers were this optimistic going into 2016, according to last year's InvestmentNews Outlook survey.
Many market analysts expect U.S. stocks will perform even better this year than in 2016, when the Dow Jones Industrial Average advanced 14% to nearly 20,0000 and the Standard & Poor's 500 rose about 11%.
“The U.S. economy is poised for accelerating growth ... similar to the 1980s.”—Erick Ormsby, CEO of Alcosta Capital Management
Erick Ormsby, CEO of registered investment adviser Alcosta Capital Management, predicts the market will increase about 15% this year. He anticipates that reduced business regulations under president-elect Donald Trump will allow for more efficient operations and lower expenses and believes significant infrastructure spending will occur thanks to government incentives.
"We believe the U.S. economy is poised for accelerating growth as we embark on a period similar to the 1980s, when Ronald Reagan was president," he said.
Other advisers, too, are more bullish than last year on U.S. equities. More than a third of advisers said they'll boost these securities in client portfolios this year, compared with 22% of planners who said they'd take that step with clients in 2016.
More financial advisers also intend to spend additional time with clients this year talking about important planning topics.
About 65% will boost conversations about retirement planning, 42% will spend more time on withdrawal strategy discussions and 26% will talk more about health care planning and Medicare, according to the survey.
While only a quarter of advisers intend to talk more about health care this year, that's more than double the amount from a year ago.
Tom West, a financial adviser who has always helped clients with health care planning issues at his firm, Signature Estate & Investment Advisors, said last year advisers probably saw an increase in questions about healthcare and Medicare expenses. He said they will likely be more proactive in 2017 with clients, all of whom are another year older.
“Advisers may be looking at the way their client base is moving to chapters of their lives where there are more predictable changes that need to be made with regards to health and housing,” Mr. West said.
Conversations about whom an adviser can speak with on the client's behalf should they be unable to make their own decisions and then further discussion about health and planning concerns can deepen the client-adviser relationship, he said.
Last year much of firms' practice management efforts focused on providing more comprehensive advice in advance of the business pressures the DOL rule is expected to unfurl. Many believe the new rule could hurt revenue for advisers who accept commissions if the new investment products aimed at meeting the DOL requirements aren't as attractive to clients.
The rules have less of an impact on investment advice that's provided for a fee. In recognition of this, some advisers anticipate shifting their business model toward more fee-based pricing after the rule's implementation.
About half of adviser revenue came from assets managed for a fee in 2016, while advisers expect about 60% of revenue to be generated from fee-based accounts this year. Advisers anticipate revenue from commissions or trails to fall from about 30% last year to 20% in 2017, according to the survey.
About 80% of advisers said they are moderately to extremely confident that they'll be ready for the April 10 implementation date that the Labor Department has set.
Two-thirds of advisers said their broker-dealer, custodian or product providers have educated them about the requirements of the new rules. However, many advisers are still hungry for assistance meeting the requisites of this murky rule.
About 55% of advisers said they have not received — but want to utilize $mdash; templates for required documents like the best-interest contract, the survey found. About a quarter have received templates and another 21% said they are not going to need or use a template.
Some firms are hiring attorneys to create documents that are customized to their businesses.
That's the route advisory firm Mack Investment Securities plans to take.
“We are a hybrid firm with financial planning at the core of our relationships,” said Ed Gjertsen, vice president at the firm and 2016 chairman of the Financial Planning Association. “We will most likely need to adapt any template to our specific way of working with clients.”
Some firms may be waiting to get documents in place in the hopes that the rule won't survive for long after Mr. Trump is sworn in on Jan. 20. Mr. Gjertsen said this may be a mistake.
“I believe this hope is misplaced,” he said.