For the financial services industry, 2016 was a year of major realignments on multiple fronts. We expect that 2017 will bring a continuation – and perhaps an acceleration – of many of the trends that gained traction in 2016. Here are five we’re watching closely.
Robo-advisors are no fad. It’s likely that over time, the advisor’s role in investment selection will decrease, at least for the core holdings of mass-affluent retail clients. The advisor’s emphasis will be more on financial planning, asset allocation, as well as connecting clients who have complex needs with tax and estate experts.
We are also likely to see a significant expansion of robo-advisors’ capabilities. For example, don’t be surprised if actively managed funds eventually find their way into robo-portfolios.
Fintech, of course, is more than robo-advisors. As major financial institutions jockey for position in the battle to win over millennials, expect a proliferation of apps and other tools to further digitize the client experience.
2. Mutual fund fee reductions
Multiple mutual fund manufacturers slashed their management expense ratios in 2016; one firm went so far as to discontinue its deferred sales charge option. As competitive pressures continue to build across the industry, we expect to see more fee cuts in 2017.
3. Ban on embedded commissions
In 2016, Canadian Securities Administrators began formal consultations to examine whether to ban embedded mutual fund commissions and require a direct-payment model for financial advice. While it’s impossible to predict what the regulators will do, we could be easily forgiven for thinking that they are eager to follow the lead of their U.K. counterparts, which have already taken this industry-changing step.
4. Best interest standard
The best interest standard being floated by regulators isn’t a full-blown fiduciary duty but, if it’s implemented, it would significantly reshape what’s expected of advisors and likely be as momentous a change as an embedded commission ban. Some provincial regulators have been quite vocal in opposing the best interest standard, but there’s little to prevent provinces that are keen on the idea from going their own way. We expect 2017 to bring some clarity on how this issue will ultimately pan out.
5. More consolidation
There was more consolidation in the independent space in 2016, as the costs associated with the heightened regulatory burden, combined with increased competitive pressures, forced a number of firms to join forces or sell to competitors. With more sweeping regulatory changes coming, we expect there to be more consolidation in 2017.