5 industry trends that could continue in the new decade

One thing financial advisers know about investments is that past performance doesn’t guarantee future performance. However, history can serve as a helpful guide when we try to prepare for the future, and that’s true as well for macro trends in the financial services industry. Let’s look back at some of the major trends in 2019 that could remain common themes in 2020 as well.

1. Transparency

Alex Chalekian, founder and chief executive of Lake Avenue Financial, took a brave step when he was the first to speak out publicly via Twitter about inappropriate comments that a number of strong individuals said Ken Fisher had made during the Tiburon CEO Summit. Rachel Robasciotti and Brian Ross also spoke out. The fallout led to a number of large state retirement plans pulling their investments with Fisher Investments, resulting in billions of dollars departing the firm’s management.

But when it comes to transparency, I was extremely impressed with what Sonya Dreizler, who also spoke out about Mr. Fisher’s comments, did by rolling out a series of blog posts that shared “real stories from real women about their experiences with sexual harassment and gender discrimination.” The powerful series, “Do Better,” highlighted important topics our industry needs to address, such as conference behavior and workplace issues of discrimination and sexual harassment.

Ms. Dreizler and Mr. Chalekian brought transparency in the industry to the forefront. Increased transparency is here and needs to continue in 2020 and beyond. Certain words, behavior and actions cannot be tolerated in our profession or our world. We need to set the example and be leaders for our generation and the ones that follow.

2. Fees

I wish fees and transparency went hand in hand, but there’s still work to do. However, investment fees have taken another big step forward. Honestly, fee compression in the investment space has been under pressure since May Day back in 1975, when Charles Schwab began offering discounted stock trades. While I’m not sure Oct. 1, 2019, has a name yet, the no-cost trading day was a big shift, with Schwab again leading the way.

When Schwab announced that it was taking commissions for online trading of many ETFs and stocks to zero, it forced other providers, like TD Ameritrade, to also make the change. There are now mutual funds with no cost at Fidelity, and funds across numbers of investment companies that can be traded without any type of trading fee.

Investment fees are coming down and so will the costs associated with managing these investments. The pressure is on, for many firms, to lower total costs as trading and investment fees continue to drop. The commoditization of investments and fee pressure on investments continues — don’t expect it to slow down in 2020.

3. Consolidation

Consolidation, especially among RIAs, is a huge trend. The record for yearly RIA acquisitions was broken last year in August. And that was before the megadeal that established the bar in 2019: Schwab acquiring TD Ameritrade. This set the stage for activity this year more than any other industry event, since the actual deal and the start of any transitions will begin in 2020. And the change might not even be felt until 2021. Schwab’s purchase of TD also pressures existing custodians, RIAs, technology providers and potential new challengers. I believe the Schwab and TD Ameritrade consolidation will spur new competition in the form of adoption of upstart custodians and similar services.

4. Technology acquisitions

While there were a lot of technology acquisitions in 2019, the two that I think set the stage for disruption in 2020 were Orion’s acquisition of Advizr and Envestnet’s acquisition of MoneyGuide. This puts the top three technology financial planning software in the hands of companies that could disrupt the industry and their users.

Schwab’s acquisition of TD falls into this category, too. That acquisition highlights concerns about being too tied to or heavily reliant on a single technology provider. If RIAs or financial planners spend a lot of time, energy and money coordinating with a technology provider that changes, they could be in a hard place.

Companies need to be aware of technology acquisitions in the future as they’re becoming more common.

5. More fiduciary rumblings

Some companies might decide the new fiduciary rules are harder to comply with than originally expected. And we are still awaiting a Department of Labor fiduciary rule, which is expected soon, perhaps early this year. States also keep pushing forward with fiduciary rule-making and laws. Many of the state rules and laws will be challenged; the SEC rule is being challenged in court. Fiduciary rules appear to be front and center in the industry.

I wanted to bookend this list with transparency and fiduciary standards because those two are some of the most important trends. Another trend that continues year after year is that financial services is one of the least trusted industries. While fees are coming down and we’re seeing a broader CFP Board standard of care and increased transparency, they’re not enough. Until the industry adopts a true fiduciary standard, we won’t be as trusted as we’d like.

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Jamie Hopkins is director of retirement research and vice president of private client services at Carson Group.

Related Topics: Fiduciary