Advisors moving over to the fee-based model should forget the critics and offer a service long abandoned by established players, says an industry vet.
The fee-based approach won’t work for many new to that model, says one expert, recommending advisors instead offer a service considered outmoded.
Fee-based veteran Jack Kennedy’s recent article for NASDAQ.com cut right to the chase by suggesting a very old-school way for advisors to add value in an increasingly difficult and competitive operating environment.
Kennedy’s solution?
Pick stocks.
The Florida advisor says that brokers who once survived through commissions and are now charging a percentage of assets under management have simply shifted their clients to the new compensation system without changing the investments held in their clients’ portfolios.
In some cases they moved their clients to lower-cost ETF strategies putting them in direct competition with the numerous robo-advisors that have cropped up in recent years.
The problem, says Kennedy, is that the low-fees charged by robo-advisors puts in doubt what, if any, discernible value their advisors provide.
“In my opinion, advisors should be continually educating themselves the way a computer cannot,” says Kennedy. “This aversion within the investment community to recommending individual stocks comes from many of these same traditional brokers and advisors, entirely based upon the fact that investing in individual stocks requires hard work, time and attention.”
His argument continues by suggesting this kind of hard work is exactly what clients are looking for from an advisor.
“This is the type of hard work and research investors would expect and welcome paying an advisor a fair amount for,” says Kennedy. “It’s the old-fashioned investment management that advisors used to perform, before the industry became obsessed with earning commissions or falling prey to media-driven narratives about risk.”
Canadian financial planner Dan Bortolotti twigged WP to this contentious idea in a retweet from Rick Ferri, a CFA with more than 20 years financial services experience south of the border.
Ferri wasn’t necessarily reacting to Kennedy’s article itself but rather the headline for a subsequent story that ran on Financial Advisor IQ objecting to the characterization of robo-advisors as a threat.
Fee-based veteran Jack Kennedy’s recent article for NASDAQ.com cut right to the chase by suggesting a very old-school way for advisors to add value in an increasingly difficult and competitive operating environment.
Kennedy’s solution?
Pick stocks.
The Florida advisor says that brokers who once survived through commissions and are now charging a percentage of assets under management have simply shifted their clients to the new compensation system without changing the investments held in their clients’ portfolios.
In some cases they moved their clients to lower-cost ETF strategies putting them in direct competition with the numerous robo-advisors that have cropped up in recent years.
The problem, says Kennedy, is that the low-fees charged by robo-advisors puts in doubt what, if any, discernible value their advisors provide.
“In my opinion, advisors should be continually educating themselves the way a computer cannot,” says Kennedy. “This aversion within the investment community to recommending individual stocks comes from many of these same traditional brokers and advisors, entirely based upon the fact that investing in individual stocks requires hard work, time and attention.”
His argument continues by suggesting this kind of hard work is exactly what clients are looking for from an advisor.
“This is the type of hard work and research investors would expect and welcome paying an advisor a fair amount for,” says Kennedy. “It’s the old-fashioned investment management that advisors used to perform, before the industry became obsessed with earning commissions or falling prey to media-driven narratives about risk.”
Canadian financial planner Dan Bortolotti twigged WP to this contentious idea in a retweet from Rick Ferri, a CFA with more than 20 years financial services experience south of the border.
Ferri wasn’t necessarily reacting to Kennedy’s article itself but rather the headline for a subsequent story that ran on Financial Advisor IQ objecting to the characterization of robo-advisors as a threat.
