Financial Planning & Investing Industry: Overview
While investment aggregators and online advisory services have grown exponentially throughout the U.S. market, traditional financial advisory models have shown relatively little decline while simultaneously investing in lower cost, online advising models targeting similar, non-traditional investors as online aggregators.
History of Financial Planning
- Financial planning as it is known today stems directly from the 1929 stock market crash and the subsequent creation of the National Association of Securities Dealers (NASD), now recognized as the Financial Industry Regulatory Authority (FINRA).
- The purpose of FINRA is to regulate the securities' industry overseeing; investor protection and education, broker-dealer registration, securities licensure and exams, and record keeping and disciplinary history. https://www.investopedia.com/articles/financial-theory/11/finra-history-overview.asp
- The Securities and Exchange Commission (SEC) is a regulatory agency which oversees the stock market, creates federal securities laws, and is ultimately responsible for protecting investors and capital. It was created in 1934 as a response to the Great Depression.
Overview of Traditional Advisors
- Traditional financial advisors can be broken into two categories, registered investment advisors (RIAs) or registered representatives. RIAs are independent and associate with several broker-dealers to provide clients with a broad array of products and services. Registered representatives can work for major wirehouses, selling recommended products, or independent broker-dealers which offer full-service investing options.
- Independent broker-dealers are given more leeway to sell the products and services they deem appropriate, while RIAs must act in a fiduciary capacity and are directly regulated by the Securities and Exchange Commission (SEC).
- Registered Representatives peaked in 2015 with a total of 639,457 representatives. By 2018, this number had decreased roughly 1.5% to 629,544. 82% of these representatives worked for large firms in 2018.
- The number of Securities and Exchange Commission Registered Investment Advisors increased from 11,473 in 2015 to 12,578 in 2018.
- Registered Investment Advisors currently manage roughly $83.7 trillion dollars in assets.
Changes in Advisory Technology
- Robo-advisors grew 15% in 2018 with $257 billion under management. This trend is expected to continue, possibly reaching $1 trillion by 2023.
- Investing aggregators and robo-advisors are primarily being utilized by demographics not typically represented by traditional financial advisors, specifically millennials and those with modest portfolios.
- Technology based investment advisors offer a broad array of services similar to traditional advisors ranging from one-time investment advice to longer-term financial planning.
- Large, traditional advisory firms are integrating investment technology to diversify and grow their business, with 63.6% of experienced advisors utilizing holistic financial planning software.