Michael Kitces to Advisors: Differentiate or You're Doomed

The blurring of the lines between broker-dealers and RIAs is “why we’re seeing all this fiduciary rulemaking,” he said, noting: “Regulators don’t generally cause change. They react to change. Regulators tend to solve the last crisis — not the next one.”

It’s nice that consumers have more options when they’re looking for financial advice and “I’m all in on the advice movement,” Kitces said. But he explained: “The problem is we’re doing the advice movement in the convergence of channels that were not all built to do advice. And now we’ve got regulatory friction and there’s all this sorting out across the channels.”

Kitces pointed to the suit that XY Planning Network filed against the SEC in September in the Southern District of New York in which XYPN argued that under the SEC’s so-called “best-interest” rule, “a broker-dealer is permitted to take into account its own personal interests in providing recommendations and advice to investors on how to invest their life savings.” That new rule means broker-dealers “may maintain harmful conflicts of interests while being able to market themselves as trusted advisers acting in their client’s best interests,” it argued.

Kitces also discussed the impact that robo-advisors have had on the industry. Kitces never saw them as a “threat to real advisors,” he recalled. “If you’re self-directed,” robo-advisors provided a “very useful tool” — advisor portfolio rebalancing software that’s “really pretty” and available on the internet, so now some people can manage their own models and “don’t need an advisor to do it,” he noted.

Yet very few RIAs have lost a significant number of clients to robo-advisors, and the clients that have fled from them have tended to be those who weren’t taking advantage of their advisors’ full range of financial planning services, he said.

Also discussed was the still-very-much-alive assets under management-based fee model. Kitces noted during the Q&A that he still didn’t hear a whole lot of complaints about the AUM model. “It’s the oldest financial services model,” one that goes back hundreds of years, he said, adding the “demise of the AUM model is overblown.” But he called it a “niche model for a niche of high-net-worth” clients, and “there’s a giant remainder of the marketplace that’s like this enormous blue ocean of people” who want to pay for advice and new fee-for-service business models make sense for them, he said.

Salvi recalled at the start of the session how somebody was packing to attend last year’s Schwab Impact and said, “I wish I was Michael Kitces, so I could just pack a whole bunch of blue shirts.” In response, Kitces noted how convenient it was to “never have to think about” what you’re going to wear — just grab those blue shirts and a black suit and “off you go.”