Advisor Business in a Fiduciary World

Feb 22, 2018


Close your eyes for a moment and think about what your business will look like in 5 to 10 years.

The SEC and DOL have implemented their rules and enhanced their vision through multiple revisions, and each one has a stricter definition. The US has caught up to countries like the UK and Australia and states have their own versions too.  You are now firmly entrenched in a fiduciary world.   Even the original rule implemented in 2018 and 2019 was just a start. And the media has moved on to other topics only revisiting it when a wayward advisor violates the rule.

Open your eyes and breathe; you can finally settle down now. But what kind of business are you in? What does your business look like? What has changed?

Lately, there seems to be a lull in the conversations with advisors about the fiduciary movement. July 19, 2019, seems like it’s far away. We’ve heard rumblings from the SEC but nothing official yet. However, rumor has it that we may see some sort of joint proposals by this fall, but most advisors are treating it as out of sight out of mind. (Except for the occasional blip like last week’s news)

5 or 10 years out

Late last week, I was having a conversation with an industry executive. We talked about the future and the businesses we chose. We also shared our excitement and frustration with the coming changes in our industry. I said, “I don’t know if the current DOL rule will be the final rule or not, but I do know the fiduciary movement is here to stay.” He agreed, noting that it’s only a matter of time before some version will get the ball rolling. He added, “Ignoring it won’t make it go away.”

We started to discuss what the business would look like 5 or 10 years from now. More importantly, what happens to some of the built-in assumptions that many advisors have about their practices. It was a very interesting and lively discussion.

So, what does a fiduciary movement do to those assumptions about the value of your business, the services you offer and the advice you give?   Let’s take a quick look.

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Advice business vs. investment business (revenue model)

Face it, in 5 to 10 years you’ll pretty much be in only the advice business. We have discussed multiple times on these pages that the consumer has a glut of product but a lack of advice. Product probably will move to uniform pricing, loads and 12(b)1 trails go away which means even less differentiation.  Compensation tied to product will be hard to justify in the new world.   Frankly, that may be good news as planning is the value hub of the advisor’s business and the investments, while important, are not what drives the client interaction.

Pricing models will change as we move to more advice. The growth of the flat fee or retainer model for advice is building momentum as robo, virtual and other models enter the market making the cost of investment-only advice much cheaper. Advisors that have been pushing lower cost products on their clients for years will be pushed themselves for lower cost implementation. Those advisors will respond with specialization, focus and niche advice—all of which may command a premium. But I can’t imagine that the advice cost will be expected to increase just based on what the markets do as it is today.

Think about that advice mode, too. Different advice models will have to be implemented. Comprehensive, modular and segmented planning will become the norm especially as we move away from aging boomers to Gen X and Y. Advice, integrated with technology, will be co-planning with the clients at their pace.

Five to 10 years from now—in a fiduciary world—your business model changes and so does your revenue model.


Placing a value on an advisory practice is more art than science. To make it easy, most of us quote average multiples to place a value on the business. For example, at a recent conference I heard one firm quote that the average multiple was approximately 2.6 times on recurring revenue and 0.9 on transactional revenue. However, while averages are great for a rule of thumb, do you think the multiples will change in 5 to 10 years when you are in a fiduciary world?  Will they still be increasing?

To me, we will see a few things.

  1. Transactional business value in the future may be considered more of a negative to the sale and not worth 0.9 times earnings. In fact, the extra compliance costs and possible business risk of being “broker of record” on some of those old products may drive the price of the overall transaction down or may even be a deal killer for some prospective buyers.
  2. Asset revenue may go down. We discussed flat fee and other pricing structures above. Charging 100 bps on AUM gives the advisor a built-in raise when the market goes up. In a fiduciary world, we may see more fees tied to advice instead of AUM, which is another reason the 2.6 multiple may come down.
  3. Profit goes down along with a lot more compliance costs as well as higher E&O premiums affecting the bottom line.  If we carry any transactional business, the costs of compliance and insurance may be prohibitive.

Will your business really be worth what you think it is when it’s time to monetize or sell?


The do-it-yourself or “rep as portfolio manager” model will be a struggle to maintain 5 to 10 years from now. Advisors using models and third-party money management will have an easier time working with clients (and the regulators) as they keep the investments at arm’s length to show objectivity and follow the fiduciary movement. Advisors will have to have clean books that don’t include straggler funds and old allocations to some forgotten investment idea or strategist. The fiduciary movement probably doesn’t dictate what product to use, but it probably will question how you chose the allocations, how you monitor the investments, what your process is for hiring/firing, and how you’re compensated. In addition, it probably needs to be documented and followed for every client to which you give advice.

Will your current way of using products survive the fiduciary world?

The future forecast

Maybe some, maybe all of these things happen in 5 to 10 years. At most, I don’t see things getting easier and I don’t see how we move away from the fiduciary movement. As far as I can tell, we have a few options. Ignore it and hope it won’t be that bad. Or, we can embrace it and get ahead. To me, there is an obvious choice: Be prepared.

  • Look at integrated planning embracing technology. Check out our webinar on how to “customize the outside while mechanizing the inside of an advisors’ practice. “The Future of Advice Management”
  • Growing business beats dying business anytime. While specialized business beats generic. Look at your firm for areas to improve your growth and efficiency. Start planning today
  • Are you a DIYer in a model world? Time to get out from under that burden and specialize in what’s important. Understand “The Value of Time”

Five to 10 years from now, we could be thriving and growing—or not. Today is a great day to start the growth plan.

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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