Happy new decade!
I look back over the last ten years—over the unexpectedly long economic recovery and extended bull market, regulatory trauma and technological change in our professional and personal lives, increased sensitivity to gender and social issues, polarized political climate and all the rest—and it makes me realize all over again that we have absolutely no clue what the next ten years will bring. Who could have predicted the last ten years when we were just emerging from the Great Recession?
Even so, I’m going to bravely venture a few predictions which I hope will guide your own thinking as you plan for what’s ahead. Then, together, we can respond with wonder as events actually unfold.
First, I believe that the financial planning profession is destined, in the next decade, to emerge out of the (much larger) asset management cohort, and ultimately subsume it. Meaning? The meaningful activity, the value proposition for the advice profession will shift almost completely from investment-focused to planning-focused. By the end of the decade, if my forecast is right, there will be no solely investment management profession as we understand it today.
There will be funds, ETFs and alts in those future days, but fewer and better, which means that less professional time and attention will be needed for building and tending portfolios.
Meanwhile, as I look in my crystal ball, I believe that the financial planning profession—the fiduciary, fee-compensated advisors among us—will gain much greater market share from the brokerage firms and sales agents, and the gains will accelerate toward the end of the next decade. Of course, in that future day, “market share” will be harder to define once we stop measuring the size of firms by their AUM.
Speaking of which, I am also predicting the demise of the AUM revenue model—almost completely—by the end of the next decade. I cannot, however, foresee what model will take over and dominate the way AUM has for the last three decades. In fact, I’m inclined to believe that the future will see a diversity of models that all hold their own in the marketplace, including quarterly flat fees, hourly fees, subscription fees and a variety of hybrid arrangements. In that future day, funds, ETFs and alts will be the financial services participants that charge based on their total assets.
All of this will create interesting new regulatory challenges. As the traditional RIA concept gives way to a fiduciary financial planning advice model, the regulators are going to have to rethink what activities they need to be overseeing.
This leads me to make an interesting prediction, but first let me preview it by noting that FINRA has repeatedly proposed to take over regulation of RIAs from the SEC—and especially that expensive, messy on-site inspection regime. The SEC seems to be open to the idea of off-loading a lot of paperwork.
So I can envision a day, within the next ten years, when the SEC will quietly create a division of financial planning, which would create a very different (less intrusive) regulatory overlay on financial planning (rather than investment-related) activities. (If a planner also takes AUM revenues, it would also subject to the traditional OCIE inspection.) This inspection regime would be supplemented—or perhaps replaced entirely—by a peer review process whereby advisors would look over the standards of practice of other advisors on a regular, standardized and regulated basis.
Regulated by who? I nominate the CFP Board to set up the peer review process, and to coordinate with the SEC to work out an arrangement where firms that volunteer for peer review (with reports forward to the SEC) would never have to host an SEC-office inspection.
Once there are regulations in place (later in the decade) that specifically relate to financial planning, it will be much easier to convince regulatory bodies to protect the term “financial planner” from misuse by nonprofessionals—and to make it easier for the public to identify professionals vs. sales agents in fiduciary clothing. (Hurrah!)
This would accelerate processes already in place to raise the requirements to become a credentialed financial planner. I am going to guess that there will be more credential competition in the next decade; that the CFA Society and the AICPA PFP Section will more aggressively promote their version of the financial planning-oriented CFP designation.
This will actually be a beneficial arms race for the profession and especially for consumers, as each credential tries to raise its standards (and its position on the moral high ground) just a bit higher than each other—until someday around 2030 we will end up with a pretty darned professional-looking cohort, no matter which credential you choose. Each designation will require minimum college backgrounds, and certificants will have passed challenging tests on their mastery of the material. They will also have to meet their continuing education requirements in their specialty.
I also predict that someday we will experience a recession and a bear market, that early in the next decade people will realize that it’s crazy to invest at negative interest rates, and the whole cryptocurrency “investment” market will end badly when people finally realize that there is absolutely nothing backing the currencies.
As I look ahead at a very hazy picture, I wonder how much longer I’ll be privileged to have a front-row seat to all of this interesting evolution. But for now, I’m really enjoying the view, watching the financial planning world march confidently toward becoming a real profession.