Donald B. Trone, L5, GFS®
It seems elite financial advisors redefine their point of differentiation about every fifteen years. If so, we may be witnessing the formation of the Third Wave – the Leadership Wave.
I would peg the beginning of the First Wave as the period 1985 – 1999. We could label this period as the time of “Governance” since the focus was on prudent decision‐making. During this 15‐year period elite financial advisors evolved from selling product, to providing clients a process. The period is marked by the transition from commissions to being paid a percentage of assets under management; the launch of the custodial warehouses (Schwab, Fidelity, TD Ameritrade, and Pershing); the proliferation of no‐load investment products; and, the availability of the personal computer which enabled advisors to access software and databases which once needed to be run on a mainframe. This also is the period when we began to debate the facts and circumstances as to when a person may be subject to a fiduciary standard and, if so, what their roles and responsibilities would be.
I think the Second Wave started around 1999 and crested about a year ago. We could label this period as the time of “Stewardship” since the focus was on the passion and discipline of protecting the longterm best interests of clients. During this period the industry defined best practices associated with an investment process, and developed the investment products and technology to support the practices.
“Fiduciary” certainly dominated this period, but not all elite advisors acknowledged a fiduciary standard, which is why the word “stewardship” is more appropriate.
That brings us to the Third Wave, which I would define as “Leadership”. It’s clear that “fiduciary” has run its course and is no longer a viable movement. Yes, we may get additional fiduciary requirements from the SEC and DOL, but they will likely merely define a de‐minimus disclosure standard, as opposed to any meaningful professional standard of care. And, in the off chance a “uniform fiduciary standard” is promulgated, it will have the deleterious effect of actually eliminating “fiduciary” as a point of differentiation. Furthermore, the public continues to demonstrate an indifference to the fiduciary standard. Survey after survey demonstrates that what the public really cares about is “trust” and whether their advisor is inspiring and engaging. That is, whether they view their advisor as a leader.
Take, for example, the current row over the introduction of “Robo Advisors.” Artificial intelligence is not a threat to elite financial advisors who know how to broaden and deepen key client relationships. Robo Advisors cannot “inspire” and “engage” which are two preconditions associated with leadership. Nor, can the Robo Advisor demonstrate the attributes of a steward: it cannot be aligned, attentive, agile, adaptive, accepting, articulate, ardent, action‐oriented, accountable or authentic.
Like any movement, you build upon what worked previously. Elite advisors must still be able to demonstrate good governance – that they have a prudent decision‐making process. They must still be able to demonstrate that their process is inclusive of industry best practices, and supported by appropriate technology – that they are good stewards. Now, they also need to show how their governance and stewardship is integrated with leadership.