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4 Takeaways for Advisors From LPL Conference

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LPL, the country’s biggest broker-dealer, had several key messages for the thousands of advisors attending its Focus 2015 annual conference in Boston during its last final general session Wednesday morning. Even advisors who are not affiliated with LPL may find them useful.

1. Don’t fight the robo.

A robo-advisor offering is “something we should rush to, not rush away from,” said Robert Fragasso, of Fragasso Financial Advisors, who participated in one of a series of 4-minute, two-person relay panels.  

Robo advice “can be a very productive part of our practices,” said Fragasso. He described it as an entry-level product that can attract more clients who could potentially want personal guidance in the future.

Robo advice for advisors is like LegalZoom for attorneys and TurboTax for accountants: potentially the start of a longtime, deeper relationship, said Fragasso, who is participating in LPL’s robo pilot program, which will begin within the next 60 days.

He named three categories of clients who may be attracted to a robo-advisor offering:

  • The do-it-yourselfer who is less affluent and younger than the traditional client
  • The grown children of current clients (“isn’t it better that we service them?”) and
  • The participant in a retirement plan, which would also provide added value for plan trustees

2. Advocate for change in DOL’s proposed fiduciary rules for advisors.

“You have the power,” said Peggy Ho, head of government relations. “Join us and strengthen our voice. Join the LPL PAC… Email Congressional members. Have your clients send emails to Congress.”

The current Department of Labor proposal “represents fundamental change in how we deliver advice to our clients and how our advisors inform investors,” said David Bergers, LPL’s general counsel.  The proposal will “prevent advisors from giving advice in the way investors need it“ and reduce investment choices for investors, said Bergers.

Under the proposal as it’s currently written, investors could not hold alternative investments such as nontradeable REITs and shares of business development companies (BDCs) in tax-free retirement accounts. In addition, if their retirement account is held at a brokerage they could not receive investment advice from that advisor (if he or she is not a registered investment advisor) unless the advisor signs a contract, along with the investor, stating a commitment to put the client’s best interest first.

Robert Pettman, executive vice president for investment prouduct and business management, said LPL is working through multiple scenarios involving product structure and pricing in anticipation of a final DOL proposal. LPL is  “thinking through all possibilities,” said Pettman, adding that  “all roads don’t lead to advisory. We’re thinking about brokerage and advisory.” 3. The bull market is not close to being over.

The current bull market is now in its seventh year — more than two years older than the average bull market — but that doesn’t mean it is poised to end anytime soon. “Age does not end bull markets,” said Burt White, LPL’s chief investment officer. 

Nor does a Federal Reserve interest rate hike on the horizon, said White. Recessions on average don’t start until 47 months after the first Fed rate hike, White said. “When the Fed raises rates it’s not the end of the cycle. It’s halftime.”

It’s economic cycles that drive the end of bull markets, specifically economic excesses, said White. He follows three “inputs” to measure those excesses: spending, borrowing and confidence. When there’s too much of all three in his “over-index,” that signals the end of the bull market.

Currently that index stands at 30, well below the 91 level typical one year before a recession starts and the 70 level, three years prior. “We’re still in the bottom third of excesses,” said White. One indicator he is watching carefully is the slowdown in global growth – in China, Europe and Japan – because that could potentially hurt the stock market.

4. Don’t give up on diversification or active management.

A diversified portfolio, including large-cap and small-cap stocks as well as international equities including emerging markets, has underperformed the S&P 500 for the last three or four years, but that’ no reason to abandon it, says White.  Such performance is not unexpected in a growth environment, but now we’re in a “modest return environment ” when diversification and active management should do better, said White.

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