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2017’s Biggest Practice Management Issues

By Grace Williams December 28, 2017

It's been a memorable year for every industry but for financial advising in particular, top-of-mind issues kept advisors on their toes. Whether advisors were waiting on the seemingly never-gonna-happen advent of the Department of Labor’s fiduciary rule, watching the insanely bull market keep rolling, or weathering client expectations, the art of practice management threw them some zingers during this past year.

Advisors face a mixed bag of dilemmas surrounding hot-button topics over the turn of any calendar year. When handled well, these moments allow FAs the chance to reassure clients that they’re abreast of the topics and able to help manage them through the situations at hand. Additional kudos occur when FAs can demonstrate that they share the same concerns as their clients, and that they want to provide top-notch services for them. But, let’s be honest: We all know that when the phone rings and it’s a client on the other end of the line, putting it all together isn’t always so simple.

Take, for instance, the DOL rule. When first introduced, the rule sent ripples through the industry as it decreed advisors must prove they are working on their clients’ best interest rather than their own. Despite revisions in the aftermath of its introduction, the ruling loomed large as one of the top issues advisors faced at the end of last year. Yet for all its attention-gathering steam, advisors and investors waited and watched as the proposed ruling went from one of the hottest topics that needed addressing to a dormant, ice-cold afterthought.

Now, as Joe Duran, CEO and founder of United Capital, noted in an interview with FA-IQ, any buzz the ruling once held is essentially all but gone.

“There’s nothing happening with it that anyone is aware of,” says Duran, whose firm is located in Newport Beach, Calif. and has $20.7 billion in assets under management. “That is the biggest surprise of the year.”

With the ruling currently on the back burner it's anybody’s guess what the actual outcome will be. But other challenges took its place and came a-knocking on advisors’ doors during the year. Specifically, for James Poer, CEO of Kestra Financial in Austin, Texas, two important issues advisors had to address involved business management and scale.

According to Poer, whose firm has $70 billion in assets under advisement, more independent financial advisors are taking proactive steps toward better capacity management. They are looking at “how to provide the best possible wealth solutions to clients at the most effective price,” he says.

A latecomer to the buzz this year took place when Morgan Stanley and UBS opted to exit the Protocol for Broker Recruiting, which sets the parameters for what client information brokers can take with them should they choose to jump ship. This move by the two giants to exit the industry convention sent a stern warning to advisors potentially looking to leave their current firm or start their own.

“This is not about firms, it’s about the client,” says Poer. “That’s why I think at the end of the day the advisor closest to the client and independence wins.” Adding that he sees this as the best way to serve clients, Poer muses, “I hope we’re not going to get into a situation where judges are going to tell investors where they can’t invest,” since one of the stated advantages of the broker protocol has been to keep such disputes out of the courts.

Above and beyond the technicalities of laws and the nuts-and-bolts decisions, one factor that continued to pop up over course of the year for Peter D’Arruda, president and founding principal of Capital Financial Advisory Group, was client expectations. Given the enormous run of the current bull market, any client paying attention knows the numbers are sky high. And part of the run includes client expectations that their portfolios will rise as well. However, the starry-eyed nature of a client’s potentially Goliath-sized expectations needs tempering.

James Poer

“We are at Defcon Five with this market,” says D’Arruda. But in addition to putting stars in clients’ eyes, it can also sidetrack advisors looking to score the best returns. One fallout that has begun in light of this is what D’Arruda refers to as “Mini Madoffs.”

“Advisors are being hypnotized by this market and they promise better performance to get a client doing things they shouldn’t do,” he said. “It never ends well.” D’Arruda’s firm is located in Apex, N.C., and has $20 million in assets under management.

Duran agrees. With a market that hasn’t had much correction for years, the question that must be asked is, how will clients cope if a 3% or higher correction occurs in the market? “We are very spoiled in this unusually and historically low volatility period,” he says. “It is priced to perfection.”

And while these examples are representative of what kept advisors earning their lunch this year, 2018 looks to present similar challenges, according to several advisors. But that is, as they say, another story.