— When John Rocca began earning enough money to start
socking some away for retirement about 10 years ago, he
took a time-honored approach to investing: hiring a
broker from a large investment bank. But, like more and
more Americans recently, he soon decided that approach
to retirement investing wasn’t working for him.
view a broker as they’re working for a big firm and
they’re pushing products and they get paid
commissions," said Rocca, 46, a commercial real
estate consultant from the Los Angeles area. "I
felt like they were pushing the product rather than
wanting to be a true advisor."
Rocca trusted his retirement planning and savings to
1080 Financial Group, a small LA firm that promises to
act in the best interest of the client. Like other
advisors who follow such a fiduciary standard, the firm
charges a flat hourly fee or an annual percentage of the
assets being managed instead of being paid commissions
on the sale of mutual funds and other investments.
putting my interests first," Rocca said.
decision is emblematic of the dramatic changes reshaping
the financial advice and management industry.
baby boomers retire, younger Americans — particularly
millennials — are questioning the conventional
approach to retirement planning as their bank accounts
grow big enough to start investing. Scarred by the 2008
financial crisis and suspicious of the motives of big
Wall Street banks, investors of all ages are looking for
lower-cost alternatives in the same sort of industry
shake-up that has led increasing numbers of TV viewers
to shun cable for online streaming.
conventional sources of financial advice to the middle
and upper-middle class — brokers such as those at
Merrill Lynch, and wealth advisors working for big banks
— are under pressure as more people shift to
self-managed 401(k) plans, IRAs and other accounts that
use low-fee stock and bond index funds. And younger
investors especially are moving on to automated programs
known as robo-advisors that spit out suggested
portfolios and investment options.
2007 to 2014, investors took a total of $659 billion out
of actively managed U.S. stock mutual funds and pumped
$1 trillion of new money into low-cost index domestic
stock mutual funds and exchange-traded funds.
investor’s got a lot more power than they ever
did," said John Anderson, managing director at SEI
Investments Co., which provides services for financial
advisors, "and the more power and the more choice
they have, the better off they are."
technology and regulation are driving an industry shift
that some warn could leave small investors unable to
access the type of high-level financial advice offered
to the wealthy by brokerage firms and big banks as those
outfits focus on clients with at least $500,000 to
the biggest change is a new federal regulation designed
to prevent consumers from being steered toward IRAs and
other retirement investments with higher fees or lower
returns that benefit the advisors recommending or
conflicts of interest cost Americans $17 billion a year,
according to the Obama administration.
new rule from the Labor Department, which will be phased
in over eight months beginning in April 2017, makes all
retirement investment advisors into fiduciaries. That
means they must put the client’s best interests above
White House, which pushed hard for the rule against
strong opposition from large financial firms and
Republicans, said it would save a 45-year-old worker
with $100,000 in retirement savings about $37,000 over
the two decades before turning 65.
rule prohibits what Barbara Roper, director of investor
protection for the Consumer Federation of America,
called a "toxic web of financial incentives"
for brokers, insurance agents and anyone else offering
retirement investment services that often run counter to
the consumer’s best interests.
Republicans have called the rule "Obamacare for
your IRA and 401(k)." They’ve joined large
financial industry players in warning it will squeeze
out services for average Americans by driving up costs
mutual fund fees have been dropping as consumers have
become savvier about expenses and sought cheaper
poll by Fidelity found that three quarters of financial
advisors expected to increase the cost of their
services, with 62 percent planning to unload some
smaller clients, because of the new fiduciary rule.
Rischall said he co-founded 1080 Financial Group last
year because he wanted to get away from the pressure he
was under as a broker to sell certain funds and other
investment products to earn commissions.
you’re trusting someone with your financial decision,
they should have your best interest first,"
Rischall said. "They should disclose conflicts of
interest and they should be transparent in
firm’s annual fees start at 1 percent of the assets
being managed, with no minimum account.
pretty darn affordable," said Rischall, whose firm
manages 190 accounts with more than $15 million in total
29, said he wants to help young people get started
investing, a tough task after the trauma of the 2008
a lot of distrust with millennials and the traditional
financial market," he said. "They think the
man’s out to screw them, unfortunately."
investors are driving the push to take more control of
managing their investments, in part because of confusion
and concern over the fees they pay, said Mike Foy,
director of the wealth management practice at market
research firm J.D. Power.
may be an element of it that relates to the financial
crisis and a certain level of trust that has been lost
in Wall Street that makes people less inclined to
delegate managing their money to an advisor," he
results released last month by J.D. Power found more
investors — particularly millennials — were becoming
"validators" or people who "want to make
their own decisions but still have access to an advisor
for support and as a sounding board."
a financial management startup in Silicon Valley, is one
of the companies trying to seize on the trend with robo-advisor
see a lot of young people are really disgusted by the
financial industry giving its best prices to the
wealthiest people and the worst prices to people who are
just starting out," said Wealthfront Chief
Executive Adam Nash.
live in a world where Netflix can take on the cable
companies, where Amazon can take on Wal-Mart," he
said. "It doesn’t make sense to them that that
can’t happen in financial services."
offers personalized, automated management of investments
with around-the-clock access on a computer or mobile
device. Prices are low, with no advisory fee for
investors with less than $10,000 in assets and an annual
0.25 percent fee on assets above that.
answer questions about how much risk they’re
comfortable with, and the data are used to recommend a
mix of stocks, bond funds and other investments. The
investor then decides how much money to put into the
about 1 percent of assets from U.S. consumers will be
invested using robo-advisor services this year,
according to estimates by consulting firm A.T. Kearney.
But that figure is expected to grow to 5.6 percent by
2020 as the technology goes mainstream.
financial planners are making more use of technology,
said Pamela Sandy, president of the 24,000-member
Financial Planning Association But she said robots can’t
take the place of human advisors, particularly if the
stock market sustains a major tumble.
really question whether someone is going to stay
committed to their long-term goals if we have another
market correction … and they have no one to talk
to," said Sandy, a Cleveland financial planner.
"A robo cannot hold your hand."