The Race to Zero and How it Changed Wealth Management

Today’s advisors can offer more services to clients, while still scaling for growth, because of technology innovation. At the same time, that innovation has created a consistent downward slope of fees in certain areas of investing. Robo-advisors charge pennies on the dollar of a typical advisor’s fees (if they charge anything at all).

While a robo-advisor can’t compete with the personal, comprehensive advice that only a human advisor can provide, they have created a need for advisors to explain those differences and their values clearly.

Where the race to the bottom has impacted investing most, though, 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 with two big stories of 2021—both GameStop and AMC defied insider expectations thanks to increased accessibility for retail traders, for better or worse.

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

As Orion CEO Eric Clarke likes to say, “The future is fiduciary.”

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 GameStop or AMC, solving the behavior gap will become a larger target for advisors to use to attract investors.

As new and seasoned investors alike adjust to the challenges of investing in the emotionally charged environment that is 2021, 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 changing, and advisors will be leading the way to a better financial future.

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This information is prepared for general information only. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice.