Behavioral Investing Has Changed — Here’s How it Impacts Fiduciary Advisors

Technology innovation has empowered financial advisors to service more clients, scale growth, and streamline operations. However, that innovation has created a consistent downward slope of fees in certain areas of behavioral investing.

While a robo-advisor can’t compete with the personal, comprehensive advice that only a human advisor can provide, they charge pennies on the dollar of a typical financial advisor’s fees and have created a need for financial advisors to explain those differences and their values clearly. Where the race to the bottom has impacted behavioral investing most goes well beyond advisor fees. When Schwab announced zero trading fees in 2019, it was only a matter of time before it became the new industry standard.

We’ve already seen the results of free trading in 2021—when both GameStop and AMC defied insider expectations thanks to increased accessibility for retail traders, for better or worse.

So where does that leave financial advisors and the wealth management industry as a whole?


The Future is Fiduciary

This is a statement we believe in at Orion and align our products and solutions to help financial advisors act in the best interest of their clients.

One of the most important roles of a fiduciary advisor is keeping clients focused on their best interests in the long term. For advisory firms, your role as a fiduciary becomes ever more important because more people are interacting with and getting financial insights from places that are decidedly not in their best interest.

Some look at the increased trading activity and ask: “But isn’t more access always a good thing? Aren’t we democratizing the world of investing?”

Our answer would be a resounding “maybe.” The long-term effects remain to be seen.

One thing is for certain: As more and more inexperienced investors chase after the next big thing, solving the behavior gap will become a larger target for advisors to use to attract investors.


Stop Behavioral Investing through Financial Planning

As new and seasoned investors alike adjust to the challenges of behavioral investing in a constant emotionally charged environment, fiduciary advisors can position themselves as experts in solving the investor problem rather than the investment problem.

People tend to think they’re better drivers than they really are, and investors tend to think they’re more tolerant of risk than they actually are. But without some sort of trading cost keeping them from trading without discretion, investors are opening themselves up to countless (and costly) risks that they’re unfamiliar with.

Once investors become aware of just some of the risk available, they can better understand the importance of what advisors do in other areas, like helping them minimize costs, properly diversify and allocate their portfolio, and drive tax efficiencies, to name a few.

In addition, untrained investors will need help in what fiduciary advisors do best—financial planning. The modern crop of investors often will have their goals upside down, with aspirational goals taking precedence over basic needs.

It is not uncommon to find an investor with a disproportionate amount of wealth tied up in a small business venture but zero access to any amount of cash or an emergency fund to lean on in case of an extended crisis.

As access to financial systems increases, the need for conflict-free advice will only increase along with it. Fee-based, independent advisors are in a strong position for massive growth. The world is continuing to change and fiduciary advisors will be leading the way to a better financial future.

Contact our team to hear more on how you can explain the value of your firm to clients and prospects.


For financial professional use only. Not intended for public distribution.

Orion Portfolio Solutions, LLC a registered investment advisor.