Fi360’s Blaine Aikin took the stage on Sunday afternoon to kick off the firm’s annual conference in Nashville, discussing (what else?) the advisor fiduciary rule and where it stands in light of all that’s happening in Washington. But it was his introduction of four ancillary ideas, nonetheless tied directly to the fiduciary rule’s fallout, that got the attention of attendees.
Specifically, Aikin pointed to product adaptation to the rule, distribution model changes, technology, and assets under advisement as areas to watch.
Product adaptation
“In order to be truly fiduciary compliant, compensation has to come out of the product, and we’re already seeing it (in mutual funds) with fiduciary-friendly T and similar ‘clean’ shares to better accommodate the standard,” Aikin said.
He added that momentum is “certainly switching to more fiduciary-based, real-time product pricing, which means a move away from nontraded REITs, hedge funds and even bonds that are less liquid.”
Noting that the move to passively managed products has been good from a fiduciary standpoint, he nonetheless feels it’s been “overdone,” and argues there is an opportunity for active management that can take advantage of market inefficiencies—many smart beta products, for instance—albeit with lower prices.
The popularity of so called impact investing and ESG screens also helps, as the investment screening process aligns with many fiduciary precepts.
Distribution model changes
Changes in distribution channels were starkly illustrated with the recent announcement by Merrill Lynch that it would no longer offer IRAs that include commissions.
“Advisors that service plans with less than $50 million in assets must also now be a 3(21) fiduciary,” Aikin explained. “So, one of the biggest players in the industry is making workforce changes with respect to fiduciary and retirement planning.”
Technology
The low-cost impact of robo advisors, combined with the automated due diligence they bring, speaks to fiduciary principles. The technology offers advantages for human advisors, he added, and its efficiency is directly related to fiduciary principles.
“Technology can now be built that adheres to a fiduciary standard, meaning that if it does not, it’s either dysfunctional or fraudulent. The advisor would have to actively subvert the technology and fiduciary safeguards to get around it.”
Assets under advisement
“The advisement numbers for those not acting in fiduciary capacity are coming down, and have been for some time,” Aikin concluded. “There will likely be a further shakeout of advisors. Fewer advisors mean higher costs to the client, except for what we previously discussed, which was transparency and technology that acts as offsetting factors, and will bring those costs down.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
