The “slick factor” was much higher 30 years ago. The industry has changed dramatically, so much so that the industry trade publications and events now are offering training to help advisors be more social and gregarious. This is an effort to combat the last 20-year trend of advisors being so technical about wealth management in their effort to show competency that many investors no longer understand what their advisors are trying to communicate due to the use of jargon and technical investment and planning terms.
Salespeople A Dying Breed
Thirty years ago, nearly all financial advisors sold securities to their clients. I, for a short time, was one of them. Stockbrokers existed for more than a hundred years prior to my short stint as one, but that was the industry then. Since the 1980s, the industry has changed dramatically, and there are far fewer pure salespeople left in the industry today.
Now, at Finra firms, over 39 percent of all money invested on behalf of investors is in fee-based programs according to the 2017 Aite Group Study whereby the advisor is a representative of the Finra firms’ registered investment advisor entity. Another consulting firm, Cerulli, has stated the percentage of client money being held in advisory accounts among traditional financial advisors had risen to 42 percent at the end of 2016 from 25 percent 12 years earlier. In plain English, many advisors today are suggesting clients invest in a program not dependent on making an individual security sale, rather managing a selection of investments in mutual funds, stocks or other investment managers for an annual flat fee, generally 1–2 percent per year. This progression coupled with the growth of financial planning or wealth management has resulted in far fewer advisors who are making individual security sales.
3. Financial Advisors Are In The Pockets Of Wall Street Firms
Approximately 50,000 advisors work for the four largest brokerage firms that are considered “Wall Street.” But there are close to 800,000 financial advisors that compete with them at the other types of firms, and 1.2 million insurance professionals that are separate from both. Given these numbers, one can no longer say financial advisors are employed by Wall Street or heavily influenced by Wall Street.
Further proof is the reality that financial advisors come in all shapes and sizes, belong to dozens of competing trade organizations, and directly compete against each other. These independent financial advisors are not shy about broadcasting their perceived advantages over Wall Street firms and the advisors that work for them. Advisors are no longer this homogenous group.
Moreover, the financial products that most advisors recommend are now also less connected—or in some cases, completely unrelated to—Wall Street firms. Essentially, these days any advisor can obtain any type of investment for their client. The crowning example is Vanguard Funds, which is one of the world’s largest mutual fund companies. Anyone can invest in a Vanguard fund, and in fact, many advisors at all types of competing firms have been putting their clients’ money into Vanguard. Here is what people don’t realize: Vanguard is owned by its shareholders—a mutually owned company. If you have $1,000 in a Vanguard fund, you technically are one of the owners of the company. Its stock is not traded on an exchange and its funds were not available through broker-dealers for most of its history. At over $3 trillion in assets as of July 2017, Vanguard is almost twice the size of American Funds, which is the most beloved broker-sold mutual fund. That is an amazing shift, and compelling proof that the power and influence shift has been dramatic.
4. “I’m Simple, So I Don’t Need An Advisor”
Are You Indeed “Simple”?