Market uncertainty, product polarization and the rise of independent broker-dealers are some trends that have had an enormous impact on the financial services industry in the last few years, the managing partner of Tiburon Strategic Advisors LLC said at its CEO summit today.

In a keynote address to 230 CEOs Tuesday, kicking off its two-day 22nd Tiburon CEO Summit in New York, managing partner Charles "Chip" Roame addressed the current state of the financial services industry, noting trends affecting the economy, the markets, regulatory reform, consumer wealth and baby boomers, as well as those involving exchange-traded funds and distribution channels.

The general tone at the meeting was one of cautious optimism. Roame and attendees said capital has been on the sidelines so long that CEOs are eager to deploy it, but want to be thoughtful about it, making sure they make the right decisions.

Roame outlined the following key, trends affecting the financial services industry:

Broad Market Environment   
In today's low interest rate environment, consumers and financial service firms are both trying to find ways to make money amid many uncertainties: European uncertainties, U.S. economic uncertainties, political and budget uncertainties, and stock market volatility in part resulting from the impact of high frequency traders.

Consumers feel burned as a result of the financial crisis and are taking more control of their investments. They want transparency and knowledge, and are demanding access to the same information that financial advisors obtain easily. "This is also showing up in the high-net-worth space," Roame said. "Clients want to see what their advisors are doing in real time with the aid of technology on demand any time."

Product Polarization
New product polarization trends, or the separation of alpha and beta, are emerging. "It's no longer a buy-and-hold world," Roame said.

More esoteric models are overtaking buy-and-hold and are shaping investor behavior. They include tactical asset-allocation strategies, supported by the growth of indexing, low-cost ETFs and hedge funds. We're seeing the mainstreaming of alternative investments, Roame said.  

Retirement income needs are also changing. "It's becoming more obvious that everybody's retirement is underfunded," Roame said. People are looking for more investment guarantees, and the already retired are looking for products that offer yield without significant risk, such as reverse mortgages and those with a dividend component.

Independent B-Ds And Breakaway Brokers

Wirehouses, Roame pointed out, have long controlled the lion's share of assets. But the independent model is alive and growing -- and increasingly on the radar screens of wirehouses, which look upon this trend either as a threat or opportunity, Roame said.

Tiburon's prediction, he said, is that many wirehouses will create an "independent light" or "half-way house," with the largest concentration of reps. Wirehouses will either embrace the trend by creating a model acceptable to the reps "or keep throwing money at the reps."

But the independent broker-dealer market has also undergone a broad restructuring with consolidation, according to Tiburon. Large independent b-ds like LPL Financial are morphing into custodians and instituting more services for advisors' benefits, as well as offering various methods of affiliation to financial advisors. Big advisors like The Edelman Financial Group are gathering a captive share of the market.

Self-Serve Channel
Firms like Schwab and Fidelity Investments are expanding their efforts that let individuals do their own investing. Tiburon sees branch banks being replaced by increasing numbers of discount brokerage offices. Younger clients with vastly different views about advice are going to use more technology in their investing, Roame said.

Regulatory Agenda

Both financial advisors and wirehouse reps are moving toward a similar fiduciary standard. "Advisors are moving in that direction based on consumer preference, and all brokers are going down the path and becoming fiduciaries," Roame said. "The bottom line is that clients and advisors are absolutely embracing a fiduciary standard, and wirehouses who haven't figured out how to live with it are still fighting it."

-Bruce W. Fraser