Career path, standards less clear in financial advice than in other fields

The path to becoming a financial adviser is not as clear as the paths to other professions, like doctors and lawyers, but that is changing, and more people should be prepared for a heightened fiduciary obligation.

Professionals in any trade “have a sacred obligation to the client and society as a whole,” Blaine Aikin, founder and principal of Fiduciary Insights, said during Tuesday’s keynote presentation at the InvestmentNews RIA Summit. The chasm in knowledge between financial professionals and their clients makes that all the more important, he said.

Since the Dodd-Frank Act was enacted in 2010, “we’ve spent a great deal of time to migrate advice to a fiduciary status more consistently across the board,” Aikin said. “It’s really difficult to do that on a consistent basis.”

Federal and state regulators, companies and industry membership groups have made that fiduciary status clearer, and there is now less of a gap between what is considered a transaction as opposed to a fiduciary relationship, he said. The SEC’s Regulation Best Interest, the Department of Labor’s revised fiduciary rule and several state-level standards are all behind a push toward putting clients’ interests ahead of the advisers’, he said.

The need for that is evident, both for consumers and professionals, with companies operating both broker-dealers and RIAs, Aikin noted.

Expect the government to increase protections for consumers receiving financial services, he said. The SEC recently hinted that there was insufficient testing with consumers over the effectiveness of client relationship summaries, delivered on Form CRS, and it will likely change the way the forms are presented to make it clear whether the relationship is transactional or fiduciary in nature, Aikin said.

“I think you’re going to see the SEC pushing more members of the broker-dealer community that are providing advice that clearly goes beyond a transaction” to accept more of a fiduciary role, if advice is not just incidental, he said.

Across various occupations, there are usually five attributes that determine whether someone is a professional, Aikin said. That includes having a code of conduct, a body of professional knowledge, governing or sanctioning authority, a pathway to the profession and recognition of the social and service obligation of professionals, he said.

For advisers, the pathway to a career is hardly certain.

A glance at the professional designations listed by Finra shows 212 options, for example. Of those, nine are accredited, meaning that they have undergone a process by a regulator or have been certified by a national organization. Some, like the certified financial planner designation, have gained prominence.

“There is a very wide variation in how strong they are,” Aikin said. Many of the more than 200 remaining designations are valuable to have, even if they haven’t gone through the accreditation process, he said.

But the fact that the government doesn’t push financial professionals toward the designations means that “it’s largely a free market approach to how we distinguish one another in the financial services community,” he said.

CONTROL YOUR FATE

In a separate panel at the InvestmentNews RIA Summit focused on growth through mergers and acquisitions, Kurt MacAlpine, CEO of CI Financial, said advisers who “want to continue to control your fate” should avoid private equity buyers that will have their own short-term goals.

Last week, CI completed its 18th deal since entering the U.S. wealth management space in early 2020, purchasing $5.2 billion Dowling and Yahnke. That transaction is expected to increase CI’s total U.S. assets to $63 billion, and its global assets to $230 billion.

MacAlpine, and fellow panelists David Devoe, CEO of DeVoe & Co., and Rick Dennen, CEO of Oak Street Funding, all acknowledged that it’s much harder for smaller companies to be active buyers because of their limited access to capital.

Any advice for a $50 million firm that wants to grow by buying smaller advice firms?

Dennen recommended that firms be very specific with their acquisition targets and look for those businesses that are most similar to their own.

DeVoe said the adviser M&A market has had seven successive years of record growth and he expects that acceleration will continue as firms try to get deals done before taxes rise. He also said that the number of sellers in the market has doubled over the past five years, while the number of buyers has only increased 40%.

Finally, MacAlpine advised those selling their firms to show strong organic earnings growth (excluding growth from market performance) and how they are benefitting from scale. The firms that CI bought last year grew at 9% organically, he said.

The InvestmentNews RIA Summit continues Wednesday with panels on recruiting, custody, fees and marketing, among other topics.