Ric Edelman: Financial Advisor Pain Is Investors' Gain

September 21, 2016

Ric Edelman is chairman and former CEO of Edelman Financial Services, which has more than $16 billion in assets under management. He is the author of several personal finance books, including the newly updated “Rescue Your Money,” and the host of a syndicated weekly personal finance talk radio show called “The Ric Edelman Show.” Edelman was ranked the No. 1 Independent Financial Advisor in the U.S. by Barron’s in 2009, 2010 and 2012. ETF.com caught up with him to talk about the state of the financial advisory world, and how investors have never had it so good.

ETF.com: Is it more difficult to be a financial advisor today than, say, 15 years ago?

Ric Edelman: There's no question it's harder to operate as a financial advisor today than 10 or 20 or 30 years ago. There's great sophistication among consumers. They have obtained greater knowledge and experience, so their demands and expectations are higher.

There is much greater regulatory scrutiny, much greater obligation for recordkeeping for regulatory purposes. There's greater competition than before. There are more and more organizations involved in the financial planning and investment management world than there used to be. And there's much greater complexity in the financial markets and the economic, legal, tax, financial environment than there used to be.

At the same time, compensation structures have dropped dramatically. Back in the '80s, stockbrokers used to earn 8.5% front-end commission for selling a mutual fund. Today robo advisors are charging 25 basis points [0.25%]. So the ability to earn as much money on a transaction—either a commission or a fee—is sharply reduced, while costs are higher, competition is higher and challenges are higher.

So, yes, it's much more difficult today to operate than it used to be.

ETF.com: Is that going to pose a problem for investors if the business gets to be too difficult to run, where it's just harder to find people like yourself?

Edelman: No. This is great news for investors. Because it means the advisors they hire are far more likely to have greater skills and experience to be operating their practices like a real business, with structure, formality, process, accountability, financial capability that will dramatically improve the client experience.

When I look at my 30-year career, there’s no question that the quality and value we deliver today has never been higher.

When I compare to what my wife and I did when it was just the two of us in the 1980s, working in a single office, with a shared telephone, there is no question we’re delivering far more value to our clients than we’ve ever been able to do. And those advisors who can't will be out of business.

It's not a problem for investors, it's a problem for investment advisors, which is why I've long said that over the next 10 years, half of the industry is going to quit. They will discover they can't meet the bar.


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