Advisors are not going to be driven out of business by digital advice, says Michael Kitces, a well-known thought leader in the financial industry.
Good advisors who build their practices on top of the digital offerings will survive and have a chance to thrive, says Kitces, a partner and director of wealth management at Pinnacle Advisory Group, headquartered in Columbia, Md.
New forces that are reshaping the financial advisory industry all stem from new technology, says Kitces, who spoke at the Financial Planning Association Annual Conference in Nashville Wednesday. The stock brokers of the 1970s gave way to the broker-dealers and mutual funds. That, in turn, created the registered investment advisor, who is now faced with the challenges of the digital age and robo-advisors.
“But technology does not kill advisors,” Kitces says. “We will build our advisory technologies on top of the robo-advice. It is true, the ones who do not adopt the new technology will end up finding other jobs. But for good advisors, their value is going up, not down.”
This industry trend is what is driving the regulatory changes at the Department of Labor and the Securities and Exchange Commission. “Technology is the cause” behind the new rules, he says. Advisors and broker-dealers who are complaining about the new rules should realize that imposing fiduciary regulations is a global phenomenon and the United States has the weakest rules of any country.
The bad news is, if you do the math to determine how many people with assets want an advisor and cross-reference those people with clients who advisors want to serve, “that leaves 23 households for each advisor,” Kitces concludes. “You’re going to have to set yourself apart.”
Saying your firm provides good service is not enough, he says.
“Who says they provide bad service?” he asked. “You are going to have to find something you are so good at that your name comes up first when someone Googles it. Find your niche, otherwise it is going to be a very difficult future for you.”