(note: following publication of this article, President Trump ordered a review of the fiduciary rule, making its future uncertain)


In the near future, the impending rollout of the U.S. Department of Labor’s (DOL) fiduciary rule is likely to have a significant impact on the wealth management industry, according to local financial advisors. Other factors impacting the wealth management landscape in the near-term include President  Donald Trump’s likely rollback of corporate taxes and the increasing use of robo-advisors. As Millennials amass more wealth, their preferences are also likely to shake up the industry.


The new fiduciary rule requires all financial advisors who provide retirement planning advice to act at the level of a fiduciary. Unlike general advisors, fiduciaries are required to act in the best interest of clients and put their clients’ interests ahead of their own.

Conor Weir is managing director and a financial consultant for Retirement Benefits Group in Long Beach. He believes the Millennial generation may drive increased use of financial robo advisors. (Photograph by the Business Journal’s Larry Duncan)


“Historically, advisors have not had to act as a fiduciary, meaning they don’t have to act in the best interest of their clients, which is kind of shocking,” Conor Weir, managing director and financial consultant for Retirement Benefits Group, told the Business Journal.


“The industry is definitely being rocked by the DOL rule,” John C. Abusaid, president and COO of Long Beach-based Halbert Hargrove, said. “We have been operating as fiduciaries, so for once we have the advantage,” he noted, explaining that other financial businesses might not be able to continue operating under the new ruling.


As Abusaid explained it, if a client were to approach a financial firm and ask that they take over management of a retirement account, that firm would have to compare costs and document whether or not it is in the client’s best interest to do so. “If our expenses are higher, or if we can’t [prove] that what we’re going to do with those funds is going to be in the best interests of the client if they move the account to us, then theoretically we wouldn’t be able to take over the account,” he said.


The fiduciary rule requires a shift to a fee-based compensation for financial advisors, which is often more expensive than other compensation models, such as commission-based accounts. Karen Codman, a Long Beach-based investment advisor, pointed out that this could make retirement planning services too expensive for investors with smaller holdings.


If corporate tax rates are cut this year – as President Trump has indicated – the impact would be positive both for the wealth management industry and its clients, according to Elizabeth Jensen, vice president and wealth planning strategist for Wells Fargo’s The Private Bank. “If the corporate tax rates are lowered, that certainly frees up capital for any company, which is nice,” she said. It does the same for the consumer client base that wealth management firms rely upon, she noted.


The industry is collectively hoping the new presidential administration will roll back regulations, Jensen observed. “There are a lot of people who are hoping that regulations will relax because the pendulum really swung to very intense regulation – to the point where it went probably past the point of effectiveness and sort of hindered the industry,” she said. “I don’t know that a new administration is really going to change that, because regulation in itself is an entire industry,” she added.


“If Trump is able to achieve a lot of what he has said he would like to in terms of [cutting] corporate tax rates, reduced regulation and improving the environment for business, we are likely to see faster growth in the economy that will be favorable to stocks,” Weir said.


The stock market has been soaring since Trump’s election, with the Dow Jones Industrial Average breaking a record, climbing to more than 20,000 points on January 25. Abusaid and Jensen both pointed out that it is impossible to predict whether this trend will continue.

“I do hope that this president has a positive impact on the market, but we have no idea,” Abusaid said.


Bonds are a muted part of the wealth management industry at the moment because current interest rates are low and are expected to increase, Weir noted. So, he explained, a bond bought today will not be as valuable as a bond bought after the next rate hike. “There is more risk now in bonds than there has been in a generation,” he said.


Lately, investments seem to be trending toward exchange-traded funds (ETFs), Jensen said. ETFs track an index of commodities, bonds or groups of assets. Ownership of those assets is divided up into shares. ETFs differ from mutual funds in that they trade like common stocks via the stock exchange. “Investors today are looking a lot more at total return. So they are not as concerned with dividend-paying stocks necessarily, as long as they are getting overall value and growth,” Jensen explained.


Trends among clients are centered on an increased weariness of costs, according to Abusaid. Jensen pointed out that increasing use of technology to provide financial planning and investment services is partially a result of this trend. “The wealth management industry isn’t too different from other industries in that technology certainly plays a role in trying to reduce costs of doing business – if we can do it in a way without sacrificing service,” she said.


Some firms have rolled out robo-advisors, which are exactly what they sound like – computer programs that provide wealth management advice and develop strategies for clients. “They tend to be used for less affluent clients, who are folks with under $250,000 to invest,” Weir said. “They do a decent job for somebody who otherwise might not have access to good financial planning.”


Jensen argued that having a financial advisor is likely a better option than a robo-advisor. “When you’re . . . doing your investing online and the market starts to tank, and fear takes over and you pull out and don’t get back in at the right time, most of the time the returns are terrible,” she said. “So having a financial advisor to talk you off the ledge and keep you in the game to get the returns that are there over the long term isn’t going to be found at those robo-advisor companies.”


Still, as Codman pointed out, “Millennials are very comfortable with technology,” so increased use of technology to provide wealth management services in the future is likely.


Millennials will also challenge the industry to be more transparent, according to Abusaid. “I think they will scrutinize way more than their parents did or the prior generation,” he said. “They are definitely going to be making sure they understand what a firm like ours stands for. It is not about how good it is and how many accreditations we have. It’s going to be more about who we really are, what our culture is, how we benefit in society, and for sure they will scrutinize the expense.”


“We are definitely very focused on making sure that we survive for several generations. So we have to start worrying about that next generation,” Abusaid reflected.