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The Future for Advisors: Morgan’s Paul Hatch vs. iShares’ Mark Wiedman

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“These panels are good when panelists disagree,” said Mark Wiedman, global head of BlackRock’s iShares, the world’s biggest provider of exchange-traded funds.

He laughed as he said it, and so did Paul Hatch, vice chairman of Morgan Stanley, the largest wirehouse advisor employer in the United States.

And so began a Thursday afternoon panel, “The Changing Advisor Landscape,” at Morningstar ETF Invest 2012, when Wiedman faced off against Hatch in a packed session at the Radisson Blu in Chicago, where hundreds of advisors, investors and providers met to keep up with the latest developments in the ETF industry.

Clearly, Hatch and Wiedman enjoyed their discussion about just how fast the world is changing for advisors. While Hatch stepped forward to promote the idea of “rep as portfolio manager” and long-term client relationship building, Wiedman talked about the inevitable change that technology, transparency, beta exposure and price efficiencies are bringing to the advisor universe.

“The role of an advisor is far more challenging than it was 30 years ago,” said Hatch, pointing to increased regulation, single-digit returns and loads of investment products that keep pouring into the market. “The growth of the fee-based advisor over the last five years has been remarkable, and it was probably keyed off of the events of 2007 and 2008. It’s not a temporary trend, it’s a permanent change in the way advisors view themselves.”

Hatch: Wirehouse Reps Look More Like RIAs

Hatch said that today, wirehouse reps look more like the RIA community, “and it’s a good thing.” And he ventured an opinion about where advisors are headed: “I would be happy if the industry went to nothing but fee-based. It’s right for the client.”

Wiedman, whose firm came up a winner in Morningstar’s recently announced ETF awards program, asserted that the ETF market will grow to $2 trillion over the next 10 years while third-party managers will grow to $200 billion.

“These forces throughout the West are inexorable,” Wiedman said, pointing to the rise in the U.S., U.K. and Europe of the fee-based advisory business. He identified a “value migration” going up toward portfolio construction and asset allocation or downward toward broad-based beta exposures.

When panel moderator and Morningstar’s fund research director, Scott Burns turned to the issue of the fiduciary standard, Hatch and Wiedman agreed that excessive regulation is a waste of time, though they came to that conclusion for very different reasons.

“I think it’s a lot of hot air,” said Hatch of the fiduciary debate. “All of the advisors in this room who don’t think they’re a fiduciary, raise your hand.”

Nobody at the Radisson Blu, of course, raised a hand.

“Advisors care about their clients first. I’m all for what Congress is doing if it helps consumers, but it doesn’t help advisors because they all already think they’re fiduciaries,” Hatch said.

Wiedman: Fees and Transparency Will Resolve the Fiduciary Issue

As for Wiedman, he believes that the fiduciary issue will be resolved as behavior changes along with fee structures.

“I think it’s about fee structures and transparency. It’s much more important than legal structures,” Wiedman said. “If you want to know what happens to ETFs, look to what happens in the fee-based world. Wherever fee-based arises, ETFs follow.”

As Wiedman predicted a fee-based future, Hatch concluded with the thought that “the death of the wirehouse community is not upon us.” Wirehouses provide liquidity and a training role for the industry, he said, along with an important source for technological change.

“That said, the indie space will continue to grow, and to grow faster than the wirehouse community itself. They will be the innovators and I think that’s a good thing,” Hatch said. “But anyone who thinks the wirehouse space will disintegrate is just unrealistic.”


For more on Hatch and Wiedman’s conversation, read Morningstar ETF Invest Live Blog, Day 2: Morgan Stanley vs. iShares on the Future of Advisors at AdvisorOne.

Check out complete coverage of Morningstar ETF Invest Conference 2012 and in-depth ETF news at AdvisorOne.


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