By: Patrick Miazga, Analyst
Overall, Americans give themselves a “C” grade for retirement readiness. While that may have been good enough for you when you took calculus in college, is it good enough for your retirement years? Depending on how early and how you plan to spend those retirement years, you might want some tutoring to bump up a few letter grades. Many Americans go about retirement savings alone, 75% according to CNBC.
The wealth management market is shifting, with the proportion between financial advisors and registered investment advisors (RIAs) shifting in favor of the latter, thanks to improving technology, smarter investors, and new laws and regulations, and the recent Regulation Best Interest (Reg BI) vote that passed on June 5th. With hybrid and fee-only advisors emerging into the market, here are three reasons why RIAs will lead the next generation of the financial advisory market.
1. Smarter Investors Equals Smarter Products
Since the financial crisis of 2008, investors have become more cautious and want additional protection when it comes to their hard-earned money. Insurers have already begun creating annuity products that protect against steep financial losses. MetLife’s Brighthouse Financial Shield Level annuity is just one of these products tailored to offer protection against sudden market crashes. RIAs work to provide advice in their client’s best interest, are not as motivated by commissions as brokers are, and earn a fee based on their client’s assets under management, usually a smaller percentage fee of 1%-2%. When you win, they win.
2. Turn-Key Asset Management Platforms (TAMP)
Technology has been improving all industries from healthcare to agriculture. One industry that lags is insurance, specifically, the sale of insurance products. Companies such as Envestnet and DPL Financial have created online platforms that give advisors a holistic view of their clients, from transparent views into the client’s credit and cash flows to the market performance of their portfolios. An advisor can take the place of your broker, insurance salesman, and even your accountant if you partner with the right RIA thanks to all the technologies at their disposal.
3. SEC Reg BI Vote
Regulation Best Interest, or Reg BI, was set to be voted on around September as it had been about a year since the reform proposal was released. It was voted on June 5th and passed 3-1. SEC commissioner Hester Peirce stated, “must watch during the implementation process to see if we have properly calibrated the rule.” The rule includes a transition period until June 30, 2020, for firms to comply with. The opposition still feels this is not enough to protect investors and feel that Reg BI only leaves a muddled standard.
RIAs are poised to disrupt the financial market. Many past brokers are making the shift to align themselves for a bright future in the industry. Licensing certifications use to be a deciding factor when determining which broker to hire since it barred unlicensed brokers from selling insurance. Now, with these advances in technology and regulations to make sure no conflicts of interest arise when it comes to your funds, financial advisors have all the tools needed to help you reach your financial safe haven.