More than 320 attendees gathered October 18-19 in Boston for the 2016 MMI Fall Solutions Conference. The conference’s theme was Building Better Tomorrows and the sessions focused on defining and understanding the convergent forces reshaping the delivery of financial advice.
Here’s a quick recap of some of the highlights:
Craig Pfeiffer on MMI: Today and Tomorrow
In his conference-opening remarks, MMI President and CEO Craig Pfeiffer assured attendees that, in a time of tremendous transition for the investment advisory solutions industry, MMI remains fully committed “…to escalate the professionalism and to grow the industry broadly. We will accomplish that by working in six areas of strategic priority on a daily basis – the membership experience, educational initiatives, data resources and analytics, next generation initiatives, advocacy, and MMI leadership.”
Among Craig’s key points:
- MMI membership remains very stable with a 90% renewal rate and an anchor core of large institutions that have been members for ten or more years. The organization is seeing new membership opportunities among small- to medium-sized firms and ones which have been more commission- or product-oriented and are now migrating to fee-based advisory solutions because of the DOL fiduciary rule.
- MMI’s recent survey of more than 4,000 members of the MMI community showed strong support and interest in the ability to engage with industry peers at thematic conferences, data access and analysis, and thought leadership. Craig highlighted examples of how MMI has been aligning its resources in these areas, citing an expanded event calendar, an ongoing review of the breadth and depth of the data and analysis that MMI provides, the success of the core eLearning programs, the expansion of MMI’s on-campus educational partnership with Envestnet and Wheelhouse Analytics, and the rollout of the new Wholesaler Training Center.
- On the advocacy front, he underscored MMI’s focused effort to help members understand and prepare for the impact of the DOL fiduciary rule while simultaneously elevating the dialogue on the “convergence” of technology, digital communications, and the investor/client experience. He also welcomed and introduced the 25 participants in the new class of MMI’s Leadership Pathway program, which recognizes and nurtures the next generation of advisory solutions leaders through a structured curriculum of learning activities and networking opportunities.
John Sweeney Urges Focus on Solutions, Not Problems
In his welcoming remarks, John Sweeney, EVP of Retirement and Investing Strategies at Fidelity Investments and Chairman of MMI’s Board of Governors, challenged the audience. He cited Jason Selk, a performance coach and sports psychologist, who advocates the importance of training one’s mind to focus not on the problem at hand, but on the solution – through a “relentless solution focus.” “Today and tomorrow at this conference, I am committed to shifting my focus to the solutions, and I ask you to join me…The people in this room have the power to change the trajectory of American investors over the next decade. We can help them save more, make better investments, give them the confidence to stay the course when markets get rough, and help them live joyous lives in retirement.”
John Sweeney | Exhibit hall | Jill Mavro
Ronald O’Hanley and John Sweeney
Time Is Not on Our Side: Closing the Retirement Savings Coverage Gap
Attendees were privileged to hear firsthand a keynote presentation by Ronald O’Hanley, President and CEO of State Street Global Advisors, about an initiative now underway to address one of this country’s most pressing problems, the looming retirement income crisis. Mr. O’Hanley, who was introduced by his colleague Conference Co-Chair Jill Mavro, began his remarks by stating, “This a critical moment for our asset managers and financial advisors, but most of all for the end users. At a time when demographics, technology, and regulation are changing, the need for help and advice has never been greater…I just can’t think of a better theme for this conference than Building Better Tomorrows. But we can’t build a better tomorrow for our clients, for their families, or for our industry without fixing America’s retirement crisis.”
- “When it comes to retirement savings, we are indeed in crisis, and a host of factors have conspired to get us there – low interest rates, stalled growth, rising healthcare costs, and an overall lack of financial literacy.”
- Moving from a DB-based system to a DC-based system has transferred substantial risk from institutions which knew how to bear and manage it to individuals who, in many cases, not only do not know how to deal with it, but don’t even know they have taken it on.
- Thirty million U.S. workers don’t participate in any retirement system because they simply don’t have access to one. “Half of small businesses don’t offer one, and small businesses disproportionately employ women and minorities. So we have a problem that is insidiously affecting those who need the most help.”
- EBRI estimates the retirement under-savings gap at $4.13 trillion. Significantly longer life spans will make the situation worse as will modest single-digit returns in a sluggish economic environment characterized by low income growth.
- The key to retirement savings is starting early, saving more, allocating assets, and rebalancing. To do this, you must have access to a plan, and the most important thing to be focused on is the “access imperative,” figuring out how to expand access to retirement savings plans – clearly the precondition for fixing this crisis. Time is not on our side because one less day of savings is one less day of return and one less day of compounding.
- In June, Mr. O’Hanley sent an open letter to Congress urging policymakers to address the problem and offered a four-point plan of attack that builds on existing workplace retirement plans which have worked in the past.
- First, it would require all private employers to auto-enroll all workers in a DC plan. Second, it would require auto-escalation and qualified default investments such as target date funds – proven tools within the DC structure that have helped employees maximize savings. Third, in recognition of the burden placed on small businesses, it calls for small business tax credits to cover set-up costs and matching contributions. Last, it eliminates the barriers to multiple employer plans to allow businesses to band together to offer affordable retirement savings plans.
- Why the workplace focus? Because decades of experience have shown that workplace plans have been successful, and we have an ERISA regulatory framework that protects such plans. The proposal recommends that 6% of an employee’s salary be set aside initially and that it be escalated to 12% over three years in 2% increments.
- This framework, while only a start, has been well received from both sides of the aisle and would reduce the shortfall by nearly 18%, taking a $740 billion whack out of the $4.13 trillion shortfall.
How Revenue and Asset Shifts Will Challenge the U.S. Wealth Management Industry
Uday Singh and Peter Chiang from A.T. Kearney presented the firm’s view of the coming re-configuration of the wealth and asset management industry based on a survey of the investment behavior and preferences of approximately 3,500 mass-affluent U.S. consumers. To project the state of the industry in 2020, they modeled six unprecedented and transformational “waves of change:”
Uday Singh from A.T. Kearney
- Increased regulation: The DOL fiduciary rule will result in $2 trillion in asset shifts as well as $20 billion in lost revenue and engender a shift to the fee-based advisory model. Certain high-cost products will be phased out because their business models will no longer be appropriate.
- Digital advice: By 2020, the study estimates that robo-advisors will manage over $2 trillion in assets, and that 28% of mass affluent investors will change their main advisory model. Looking ahead, both self-directed and fully-delegated advisory models will decline in importance as the use of hybrid models increases.
- Pressure on Fees: Investors will finally be in the driver’s seat as increased price transparency/sensitivity and competition drive advisory fees down. The willingness to switch advice providers for a fee discount is high, especially among younger investors – over 90% for those aged 18 to 34.
- Baby Boomers: Half of this cohort will be retired by 2020. As they retire, they are likely to migrate to models that provide increased advice – either digital, human, or both.
- Generational Wealth Transfer: Younger generations will inherit $8 trillion over the next 10 years, transferring assets primarily to independent advisory models.
- Rise of independent advisors: Advisors will continue to break away from traditional broker-dealers to independent advice models because of better compensation, greater autonomy, and improved client retention, creating a $1.3 trillion asset shift by 2020 in which RIAs, dual RIAs, robo advisors, and ETFs will benefit disproportionately.
Conference Co-Chair Patty Loepker
The 2016 Political Landscape: What Can We Expect?
In her introduction of Joseph Wall, Vice President, Office of Government Affairs, Goldman Sachs, Conference Co-Chair Patty Loepker of Wells Fargo Advisors spoke of the value of an insider’s knowledge given the very disparate reporting being offered by the media. Mr. Wall lived up to his billing. His very sophisticated and well-documented analysis of likely outcomes in the upcoming election captivated the audience.
Can You Hear Me Now? Best Practices in Client Communications
The effectiveness of communication – whether in a sales setting or sitting down with a client – is very much a function of how you say something, the words and terms you use. In a panel moderated by Brendan Clark, two communications experts – Gary DeMoss of Invesco Consulting and Michael Foy of J.D. Power – gave attendees a crash course on communications dos and don’ts.
- The advisor’s ability to formulate and communicate a value proposition will become more important over time.
- One of the key areas is the lack of understanding about fees – what people are paying and why they are paying it.
- The advisor’s ability to effectively communicate around goals and performance is a more important driver of satisfaction than what the investor’s actual returns are.
Mr. DeMoss’ firm has for eight years been studying the use of financial language and the emotional impact it has on people. Out of that research, come four communications principles:
- First, any element of fear-based selling is out today. “A recent study we did focused on the language that should be used when telling clients about the DOL rule. Negative language and blaming overregulation just doesn’t work. Clients don’t want negative messages – they want positive, hopeful messages.”
- Second, promises made to clients must be believable because of the extreme skepticism in today’s world.
- Third, speak in plain English, not jargon, and that will be a challenge as the word ‘fiduciary’ is introduced into client conversations. When focus groups are asked what they least like to pay as an investor – commissions, fees, charges, or costs – the answer is invariably fees, which is a universally disliked term. The preferred language is, “There are certain costs associated with our practice.”
- Fourth, generic conversations are out. The conversation must be personalized and about the client, which is especially important when talking about DOL. It has to be carefully framed and not as “This is something I am now required to tell you,” which is negative.
The Shifting Landscape of Product Development in an Outcomes-Oriented World
This panel toured the product development landscape taking note of trends that are developing as the industry wrestles with implementation of the DOL fiduciary rule. Some highlights:
- Simplification is critical. Advisors need to start new relationships by asking what the outcomes should be and by defining their value propositions.
- Change will come at a very fast pace. There are extreme margin pressures, and it’s a fact that prices are coming down.
- As we shift to a goals-based approach, you have to be thinking about a solution rather than a product sale. That means the way you approach your business and interact with clients will be very different.
- Large distributors will be addressing the same set of problems, and that translates into fewer products on the shelves and fewer relationships with asset management firms.
- Asset managers have to anticipate and react to the changing product needs of sponsors. It is easier for a distributor to deal with one firm with a wide range of products, and that distributor will undoubtedly want those products in all types of vehicles, not just ’40 Act funds.
- Selling asset management products is going to be more home office-centric as distributors merge and refine their platforms, and asset managers must understand each of the solutions those firms are developing and how to meet the needs of those platforms.
- The search is definitely on for the low cost, most efficient vehicle. High-cost products will be left by the wayside while low cost ETFs and mutual funds continue to gain momentum. There is a definite uptick in packaged solutions.
- Asset managers are starting to flock together, wanting to combine their offerings into broader solutions and jointly leverage their wholesaling staffs.
An Outside-In View of the Advisory Solutions Industry
The conference program committee, seeking a different perspective on the investment advisory industry, assembled a panel to provide a view of wealth management from the outside looking in. The three panelists – financial journalist and author Bailey McCann, Brennan Hawken, Senior Equity Research Analyst, UBS Investment Bank, and Jason Schwarz, President of Wilshire Funds Management – were introduced by moderator Mike Keenan of MFS Investment Management, who noted that much of what is written about the industry “is inaccurate and frankly doesn’t do us any favors. What we are hoping to do today with this panel is to give you an outsider’s view of us, but, equally important, we want to talk about what we can do as an industry to present reality accurately and make sure the perceptions of financial services are no longer what they are today.”
Using a recent story in The Wall Street Journal declaring that active management is dead as a jumping-off point, the panel discussed “headline risk” and brand risk. They agreed that the industry needs to take a more active role in shaping public perception, noting:
Leadership Pathway Attendees
- the importance of building and maintaining a solid reputation,
- how dents in a holding company’s reputation can trickle down to its subsidiaries,
- the imperative to explain a complex industry to a world craving simplicity,
- how the industry needs to do a better job of setting the expectations of advisors and clients about new products and the industry’s evolution, and
- a general failure to articulate value propositions across the industry.
A Host of Other Timely Topics
Between the general sessions, participants also had the chance to attend breakout sessions on topics such as the business impact of FinTech on wealth management, how firms are preparing to implement the DOL fiduciary rule, and the latest trends in product usage and development. They were also treated to provocative “Ted Talk”-style presentations from our conference sponsors on everything from the disintermediation of distribution and the “simplicity of relevance” to busting ESG myths and the power of intelligent dashboards.
It was a jam-packed two days. If you were able to join us, we hope you left Fall Solutions 2016 feeling energized and optimistic about the invaluable role that advisory solutions play in Building Better Tomorrows for investors. If you weren’t able to attend, please contact us with questions on any of the topics or resources discussed.
In either case, check the MMI calendar for upcoming events, including the Toronto Wealth Management Summit on November 15th and next year’s three-day MMI Annual Conference in Chicago on October 2-4, 2017.