Business Transformation: Navigating a Path Forward€¦ · Business Transformation: Navigating a...

ContentsExecutive Summary .......................1

About the Research .......................1

Business Transformation— Key Themes ....................................2

Evolution of the Business Strategy .........................3

Transformative Regulation ...........7

Technology Transitions ...............13

Evolution of the Financial Professional Role ........................15

A Changing Financial Professional Landscape ....................................18

Finding the Best Approach .........19

Respondent Profile .....................20

In collaboration with

Business Transformation:

Navigating a Path ForwardExecutive SummaryThe financial services industry is undergoing sweeping transformation, presenting challenges and opportunities. How can the industry capitalize on those opportunities in order to reinvent itself and remain relevant to investors?

Business Transformation: Navigating a Path Forward, commissioned by BNY Mellon’s Pershing and produced by Aite Group, identifies what financial services firms and financial professionals are doing to address an evolving regulatory, industry and socio-economic environment, while considering the organizational impact of an industry in transition.

About the ResearchWhat is distinctive about this research is that it pairs two different perspectives for a holistic view on business transformation. In July 2017, Aite Group conducted:

20 Phone Interviews• Qualitative interviews with senior

executives at broker-dealer firms

• Interviewees shared insights on business transformation including: - Challenges to products

and pricing

- Effect on financial professionals andinvestors

290 Online Surveys• Quantitative survey with U.S.

financial professionals from broker-dealers, banks, insurance firms and RIAs

• The data has a margin of error of 6 points at the 95% level of confidence

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Business Transformation—Key ThemesThe Aite Group’s interviews with broker-dealer senior executive interviews and surveys of 290 financial professionals were designed to find out what firms and financial professionals are doing to transform their businesses to remain relevant both today and in the future.

Five key themes of business transformation

Evolution of the Business StrategyIndustry changes and new regulation over the last decade have altered the financial services landscape and include new perspectives on growth, major structural changes as well as modified product lineups.

Transformative RegulationThe complexities of an evolving regulatory environment pose significant challenges for the financial services industry.

Technology Transitions While making technology changes to address regulatory requirements, firms have used this opportunity to enhance technology that also supports broader key initiatives.

Evolution of the Financial Professional RoleBusiness transformation in the financial services industry is inspiring an evolution of the role of the financial professional.

A Changing Financial Professional LandscapeAs the role of the financial professional changes, successful financial institutions are taking an active part in providing the support and tools they need to remain competitive.

Business Transformation: Navigating a Path Forward 3

1. Evolution of the Business Strategy

Industry changes and an abundance of new regulation over the last decade have altered the financial services landscape. As a result, business strategy evolution is taking many forms that include:

› New perspectives on growth

› Rationalization of investment platforms

› Rethinking the utilization of various mutual fund share classes

› Redefining product and pricing structures

As new developments occur, firms will continue to navigate a path that best aligns with their client base, financial professionals and ongoing business objectives. Financial professional respondents also show a commitment to the business, equating business model changes with opportunity.

New Perspectives on GrowthMost financial professionals (68%) feel that in order to achieve growth opportunities, reaching new and untapped investor segments is key, and 62% feel new digital and social strategies are a moderate or major factor. The use of mobile apps and the digital experience generally—but not exclusively—appeal to the younger segment. In digital engagement, Millennials (those born between 1982 and 1999), are a clear target for front-line financial professionals.

Growth through mergers and acquisitions is a moderate or major factor for 64%, and 62% list investing in strategic talent acquisition.

Methods to focus on growth

Growing through mergersand acquisitions

■ A major factor ■ A moderate factor ■ A minor factor/not a factor

Investing in strategic talent acquisition and development

to increase capacity

Creating opportunities to reach new and untapped

investor segments

Developing new digital and social marketing strategies to

help drive client acquisition20% 42% 38%

15% 47% 38%

14% 50% 36%

14% 54% 32%

Source: Aite Group’s survey of 290 financial professionals, July 2017 (n = 290)

Most financial professionals (68%) feel that in order to achieve growth opportunities, reaching new and untapped investor segments is key. 62% feel new digital and social strategies are a moderate or major factor.

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While there is much talk in the media about Millennials, firm executives do not specifically emphasize this group. One executive notes that an evaluation of beneficiary data suggests wealth transfer is going to younger Baby Boomers, not Millennials.

Overall, executives state prospective clients are those with assets that are above the firm’s minimum. Entry to the firm is a function of wealth—whoever has the money. One respondent stated that “potential affluence” is less interesting.

Rationalization of Investment PlatformsMany broker-dealer executives are still somewhat undecided regarding investment products until regulation—or deregulation—settles. There are several factors that now come into consideration beyond share class selection that impact an investment platform, including:

› Meeting best interest standards

› Level compensation

› Impartial conduct standards

The broker-dealer home office is seeking to align with regulatory requirements while positioning against the competition—to avoid being the outlier. Uppermost is the desire to minimize the impact on the firm’s clients and financial professionals—all against a backdrop of firm profitability. Product decisions will therefore continue to evolve over time.

Mutual funds are a mainstay and exchange-traded funds (ETFs) continue as favorites. Both vehicles are used by financial professionals, but as the forerunners, mutual funds tend to be dominant. Generally speaking, decades of market education on mutual funds has made its mark.

Broker-dealer executives are negotiating with insurance carriers for level-fees on all types of annuity products. Several executives spoke of streamlining the number of carriers that their firms offer. Yet insurance solutions are an important tool in the financial planning toolbox, and both demographics, along with asset and income shortfalls, suggest strong growth annuities.

The high-net-worth client segment has always been interested in alternative investments, and most executives view it as a key product in a diversified wealth offering. Yet, a few broker-dealer executives report removing illiquid products due to the difficulty of demonstrating best interest with an illiquid product.

Home offices have also focused on negotiating with alternative investment providers for levelized compensation for these products—something very new for this segment.

While mutual funds are a mainstay and exchange-traded funds (ETFs) continue as favorites, executives state that insurance products and alternatives are important going forward.


Rethinking Mutual Fund Share Classes Broker-dealer executives might wish for industry normalization regarding share classes but readily acknowledge that it is unlikely to occur.

Broker-dealer executives are proceeding with product choices that suit firm financial goals and financial professional-client relationships. Some broker-dealers that have always offered no-load institutional shares will continue with this same offering. Broker-dealer executives speak of transitioning to A-shares with costs rebated and loads waived. A few executives say their firms use a simple, uniform trailer fee on C-shares. Several are waiting for regulatory changes to settle before committing to further product changes.

For their part, financial professionals echo broker-dealer executives’ preference for institutional shares. In response to a question about general usage, 34% of financial professionals said they will begin using or will increase use of institutional shares, and 31% say the same of A-shares. Financial professionals will maintain current usage levels at 43% for institutional shares and 41% for A-shares. Interest in T-shares lags with 28% of financial professionals anticipating increased activity.

Share class usage in the future

A-shares

Institutional shares

T-shares

C-shares

B-shares

■ Begin using ■ Increase use

■ Uncertain ■ Not applicable

■ Maintain current level of use ■ Decrease use

9% 22% 41% 11% 9% 10%

7% 27% 43% 6% 6% 11%

7% 21% 36% 9% 11% 16%

4% 21% 39% 12% 10% 14%

6% 18% 40% 8% 9% 20%

Source: Aite Group’s survey of 290 financial professionals, July 2017 (n=290)

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Since the regulatory front has not yet settled, the possibility of change persists. Reversal of the DOL’s Conflict of Interest Rule or rule softening may change the course of action in product selection. Future product availability may alter the share-class landscape. Some financial professionals anticipate a decrease in use of A-shares (11%) and C-shares (12%).

Future regulatory action could accelerate the externalization of commissions for mutual funds used in brokerage platforms. In a competitive market, transparent distribution fees would generally normalize, facilitating financial professional fee comparisons.

Redefining Product and Pricing Structures Broker-dealers went through detailed due diligence on product reviews with assessments of investment mandates, alignment with portfolio recommendations and an evaluation of comparative pricing. Senior executives frequently speak of paring back offerings by:

› Removing product and provider redundancy

› Decreasing lower-quality products and those less in demand

› Vetting products relative to pricing appropriateness and mutually agreeable terms with product sponsors

› Reviewing asset minimum requirements

› Enhancing product suite to include robo advisor platforms, in certain scenarios served as a solution for low balance accounts

Generally, broker-dealer executive interviews suggest that most firms lowered fee minimums. They leveled fees across products and platforms, particularly for retirement accounts. Broker-dealer executives intended to minimize the impact on investors and, for the most part, they believe they achieved their objectives.

Broker-dealer executives spoke of building greater structure regarding product selection and investment model strategy to bring greater home office involvement and oversight, leaving the financial professional to focus on the relationship.

Opinions from broker-dealer executives on mutual fund share classes ran the gamut from “too many and too confusing” to “all share classes have value in various situations.” At this time, there is no consensus on the direction of future use.


2. Transformative Regulation

Managing a changing regulatory environment amid legislative and economic uncertainty is no easy feat. Our research yielded the following key regulatory themes that respondents cited as driving transformation within their businesses:

› DOL Conflict of Interest (Fiduciary) Rule

› SEC uncertainty regarding fiduciary regulation

› SEC Custody Rule

Transformation trickles down from the home office to financial professional practices, as shown below. Overall, changes are felt rather consistently across all financial professional types, from the move to advisory programs, to increasing compliance and oversight requirements, to changes impacting the client experience in a variety of service offerings.

How regulation is transforming the industry

Accelerated movetoward advisory

programs

Created bettergovernance and

oversight

Enhanced processesfor fiduciary

Reducedproduct shelf

Created operationalchanges

Streamlined annuity andinsurance processing

through electronic orderentry and funding

■ RIAs (n=80)

■ Dually registered advisors (n=58) ■ Registered representativies (n=83)

■ Hybrid advisors (n=43)

29%

29%

23%

19%19%

40%

40%38%

33%

33%

30%

31%

34%

36%

37%

23%

14%26%

35%14%

23%28%

27%

47%

0 10 20 30 40 50

Source: Aite Group’s survey of 290 financial professionals, July 2017

Broker-dealer executives claim that growing the investment advisory business is a priority. For the regional, entrepreneurial broker-dealers, it is an organic process they will not force, yet they note that it is increasing on its own.

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A few exceptions exist relative to how financial professionals perceive the way that recent regulatory change transforms their wealth management business.

Differences in perceived impact of regulatory changes by financial professional type

Registered representatives Experiencing stronger governance and oversight, a reduced product shelf and streamlined insurance product processing.

Hybrid and dually registered advisorsCoping with greater change as they accelerate the move to advisory programs and deal with enhanced processing requirements for fiduciary recommendations.

RIAsUndergoing fewer changes, but still affected, as anticipated.


DOL Conflict of Interest (Fiduciary) RuleOverwhelmingly, broker-dealer executives identified the DOL Conflict of Interest Rule, commonly referred to as the fiduciary rule, as the number one regulatory pain point. Firms continue to actively monitor regulator announcements and public comments, as well as those from the White House and congressional members. Firms are also closely watching competitors to discern market positioning.

As of this writing, the DOL is seeking an extension of the transition period until mid 2019. For some firms, certain actions will be postponed indefinitely until the firm is confident of the rule’s course. In the meantime, the Impartial Conduct Standards still apply.

Probably the largest hurdle is the contractual class action language in the Best Interest Contract Exemption and the public website disclosures. Several executives worry about potential litigation triggered by public disclosures.

A combination of workflow process and technology changes helps firms manage and meet regulatory requirements. When change occurred, 83% of financial professionals reported dealing with new processes, 69% with new training requirements and 54% with new software tools.

Despite delays to compliance with the DOL rule, a fiduciary mindset is here to stay.


Firms are organizing a stronger home-office-led effort for recommendations and financial professional oversight. Broker-dealer executives do not anticipate any grand-scale rolling back of the work done to date. They feel that, although painful and expensive, the result is a more efficient and better-documented process for investment recommendations and financial professional-client interactions.

The fiduciary rule’s rapid implementation means multiple approaches for preparedness. Dually registered advisors, at 59%, are most active in building their own solutions to address the rule. Other segments do so about a third of the time and more frequently combine proprietary and third-party solutions. External consulting firms are used by 30% of registered representatives. RIAs (16%) and hybrid advisors (14%) find no action is necessary, as all or some of their work already exists within the fiduciary mandate.

DOL fiduciary rule preparedness

Dually registeredadvisors (n=34)

RIAs (n=38)

Hybrid advisors(n=22)

Registeredrepresentatives

(n=50)

■

59%

34% 18% 16% 11% 5% 16%

32%

28% 26% 30% 8%4%

4%

27% 18% 5% 5% 14%

12% 18% 6%2%

2%

Building our own new solution(s) and infrastructure

■ Using a combination of proprietary and third-party solutions

■ Engaging outside consulting firm to strategize on a plan

■ Outsourcing strategy solely to a third party

■ Not doing anything ■ Not applicable/don’t know


Not applicable/other responses were typically because the RIA was already operating with fiduciary standards, the respondent stated his or her practice relied on the firm’s work in this area, or the respondent did not know.

Broker-dealer executives feel a fiduciary mindset is not one strategic approach, product or process. Acting as a fiduciary means putting the client’s best interest first, as well as doing the hard work to make sure investment recommendations are aligned with client financial goals, are vetted through appropriate due diligence and are guided by a qualified financial professional.

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Although RIAs have long operated as fiduciaries, they are not untouched by business transformation in the financial services industry, and these firms have also reviewed processes, services and technology for opportunities to strengthen their competitive position and satisfy regulators. RIAs are observing the brokerage industry as it evaluates policies and procedures, implements new technology automation, conducts due diligence reviews on offerings, validates client alignment with recommendations and portfolios, evaluates and removes conflicts of interest, and builds an ongoing evidence trail of client best interest.

35%

Top actions RIAs are taking to prepare for the fiduciary rule

Building new solutions and infrastructure

19% Using combination of proprietary andthird-party solutions

16% Engaging outside consulting firm tostrategize on a plan

11% Outsourcing strategy solely to a third party


When the RIAs were asked about DOL fiduciary rule preparedness, 35% said they are building their own new solution, 19% are using a combination of proprietary and third-party solutions, 16% have engaged an external consulting firm and 11% are outsourcing their DOL response.

SEC Uncertainty Regarding Fiduciary RegulationThe SEC has authority under the Dodd-Frank Act to establish a uniform federal fiduciary standard for broker-dealers and financial professionals. The SEC chairman has expressed an interest in working collaboratively with the DOL.

Currently, the SEC is conducting its own examination of the standards of conduct applicable to financial professionals and broker-dealers, and soliciting feedback from investors and the industry. The commission examined this area multiple times in the past, most recently in 2013.1

Overall, broker-dealer executives interviewed prefer a single standard of care for all retail and retirement accounts. The expectation of those interviewed is that the SEC take the lead to provide a more universal standard of care for all account types. Only time will tell where the two regulatory agencies net out.

1 Chairman Jay Clayton, “Public Comments From Retail Investors and Other Interested Parties on Standards of Conduct for Investment Advisers and Broker-Dealers,” SEC, June 1, 2017, accessed on August 11, 2017, https://www.sec.gov/news/public-statement/statement-chairman-clayton-2017-05-31.

RIAs must now make changes to stay competitive with other types of financial professionals who often leverage greater financial and company resources.


SEC Custody RuleThe SEC custody rule—Rule 206(4)-2—is designed to provide safeguards for investors against the possibility of theft or misappropriation of assets. The rule has posed a challenge to some financial professionals who may not recognize they have custody—and therefore fail to meet its regulatory requirements—such as situations in which the financial professional serves as trustee, is authorized to write or sign checks for clients or is authorized to make withdrawals from a client’s account as part of bill-paying services. The SEC defines custody of client assets as when a financial professional holds, “directly or indirectly, client funds or securities or [has] any authority to obtain possession of them.”2

Per their firms’ Form ADV, 52% of 113 financial professionals say their firm has custody of client assets, 36% of financial professionals surveyed state they do not have custody, and another 12% are uncertain. Of those who stated their firm does not have custody, 63% said it is still under evaluation, and 27% stated policies and procedures are currently under revision.

Preparedness regarding the custody rule

0 2010 30 40 50 7060

Still evaluating

Currently revising firm policies and procedures

Revising advisory agreements to obtain client representations

and warranties

Uncertain

63%

27%

5%

15%


Abiding by the custody rule for most (56%) means ensuring all seven requirements set forth in the rule are satisfied, and for 24% of financial professionals, the best approach is limiting authority with respect to money movement.

The SEC custody rule has been challenging for some financial professionals who traditionally have helped clients beyond investment recommendations. At times, a financial professional’s desire to help expedite an action for a client has run afoul of the rule. Compliance teams are pressed to educate financial professionals on rule requirements and to audit adherence to the firm’s policies and procedures.

2 “U.S. Securities and Exchange Commission Release No IA-2176; File No. S7-28-02,” SEC, accessed on August 18, 2017, www.sec.gov/ rules/final/ia-2176.htm.

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Steps being taken to address the custody rule

0 2010 30 40 50 60

Revise policies and procedures to ensure the 7 requirements set forth in the SEC no-action letter are satisfied

Limit financial professional authority with respect to money movement

Acknowledge custody per form ADV

Uncertain

Pull all standing third-party letters of authorization and submit new

instructions for each asset movement

56%

24%

22%

17%

10%


Seven No Action Relief Conditions From the SEC3

1. The client provides an instruction to the qualified custodian, in writing, that includes the client’s signature, the third party’s name, and either the third party’s address or the third party’s account number at a custodian to which the transfer should be directed.

2. The client authorizes the investment adviser, in writing, either on the qualified custodian’s form or separately, to direct transfers to the third party either on a specified schedule or from time to time.

3. The client’s qualified custodian performs appropriate verification of the instruction, such as a signature review or other method to verify the client’s authorization, and provides a transfer of funds notice to the client promptly after each transfer.

4. The client has the ability to terminate or change the instruction to the client’s qualified custodian.

5. The investment adviser has no authority or ability to designate or change the identity of the third party, the address, or any other information about the third party contained in the client’s instruction.

6. The investment adviser maintains records showing that the third party is not a related party of the investment adviser or located at the same address as the investment adviser.

7. The client’s qualified custodian sends the client, in writing, an initial notice confirming the instruction and an annual notice reconfirming the instruction.

3 Investment Advisers Act of 1940—Section 206(4) and Rule 206(4)-2. https://www.sec.gov/divisions/investment/noaction/2017/investment-adviser-association-022117-206-4.htm


3. Technology Transitions

Some firms have taken an opportunity to address other business needs when making technology changes that address regulatory requirements:

› Compliance and oversight enhancements

› Going digital

Compliance and Oversight EnhancementsFinancial institutions are focusing on building technology to help the financial professional make appropriate decisions regarding investment recommendations from a compliance and oversight perspective. Technology changes enable firms to capture more client information and interactive data to:

› Create reporting to demonstrate best interest

› Generate trigger alerts to prompt for missing documents

› Monitor account and portfolio status

› Aggregate data from multiple systems for compliance purposes

Financial institutions rely on multiple technology solutions to meet regulatory requirements. At times, it might be a mixture of proprietary and third-party solutions. Executives most frequently cite client relationship management (CRM) and financial planning platforms as critical. These systems support a collection of added client information, recording evidence of best interest, validating recommendation appropriateness and establishing an audit trail. Technology automates these processes, improving financial professional efficiency and accuracy.

Financial planning tools are the biggest share of technology investments at 33%, the digital client experience accounts for 20% and CRM platforms make up 19%.

Biggest share of technology investment

33%

20%19%

14%

14% Financial planning tools

An integrated digital client experience

CRM platforms

Customizied proprietary technology

platform

Risk management tools (e.g., portfolio analytics

and scenario simulation)


Regulatory pressures have meant faster approval processes of changes and additions to the technology stack.

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Going DigitalWhile making technology change to address regulatory requirements, firms have seized the opportunity to provide financial professionals with new digital engagement platforms that provide:

› Better online and collaboration tools

› Improved dashboards

› Enhanced client-facing platforms

Broker-dealer executives state that home-office approaches to digital engagement platforms vary. Firms may use proprietary technology, purchase a digital solution from a vendor or service provider, or deploy a combination of build and buy.

Among financial professionals, some already use a digital platform, and nearly half are very interested or interested.

Top reasons financial professionals use digital engagement platforms

Provide service options to clients

47%

Automate onboarding and portfolio management

46%

Attract new client types

45%

Service smaller accounts to focus on pressing matters

41%



4. Evolution of the Financial Professional Role

Business transformation in the financial services industry is inspiring an evolution in the financial professional role. Traditionally, many financial professionals provide services beyond investment advice, but few have quantified this value they add to the client relationship. Broker-dealer executive interviews suggest this could change, as there is a growing need to substantiate the value of a financial professional and the numerous areas of financial and personal support. Our research focused on three key areas:

› Enhancing the value proposition

› Reviewing the service model

› Assessing investment vehicle usage

Enhancing the Value PropositionBusiness evolution is gaining speed as an information-based society grows in sophistication, the financial services industry attracts new and varied firms and investors ultimately find more choices at hand. Aging clients contemplating wealth transfers can mean new opportunities for financial professionals who can adapt. The size of the demographic shift, coupled with complex financial retirement and healthcare management, holds the potential for new products and services, which enhance the role of the financial professional. Helping clients through complex times can generate loyalty.

New CompetitorsTechnology is creating startups that challenge old methods of doing business.

End-UserExpectationDigital engagement, social media and mobility have become standard.

ProductivityProgress in hardware and software, such as HTML5, Cloud and machine learning, enable more efficiency.

ChangingDemographicsU.S. demographic shifts impact sales approaches and investment plans.

Wealth TransferAn intergenerational wealth transfer will begin in the coming decades.

Client AttritionAn aging Baby Boomer client base createsthe need to attract younger clients.


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Reviewing the Service ModelAite Group asked financial professionals about core wealth management services currently offered and where they plan to add services. Current service offerings include financial planning (74%) and investment management (73%) as the mainstays. Rounding out the top five are insurance planning (40%), estate planning (37%) and tax planning (32%). Today, insurance planning is more prevalent with hybrid and dually registered advisors (44%) and registered representatives (56%) than with RIAs (21%). Cash flow management is a current offering with 29% of respondents, however, more so with dually registered advisors (44%). Across the board, liquidity management is currently available from 24% of respondents.

Over the next 12 months financial professionals plan to add financial planning (40%) and investment management (40%) services. The next three top service additions are estate planning (32%), insurance planning (26%) and tax planning (25%). Smaller numbers of financial professionals will add cash flow management (24%) and liquidity management (20%). There were no statistically significant differences among financial professional segments relative to future service additions.

The evolving service model

Financial planning

Investmentmanagement

Estate planning

Insurance planning

Tax planning

Cash flowmanagement

Liquidity management

0 2010 30 40 6050 70 80

40%74%

40%

40%

32%

32%

37%26%

25%

29%24%

20%22%

73%

■ Adding service ■ Existing service


Across segments, 21% of financial professionals foresee no change to their core wealth management offering.


Assessing Investment Vehicle Usage On the financial professional front, mutual funds have long been a dominant player. What we are seeing is that ETFs, which are newer to the market, continue their popularity with 42% of financial professionals either beginning to use or increasing use. Equities are also a favorite, with 39% either beginning to use or increasing use. Alternative investments are of clear interest to financial professionals (13%) who expect to begin using the investment vehicle, while 26% anticipate increasing use.

Overall, financial professionals are utilizing the full spectrum of investment vehicles to meet investment goals. Fixed income and annuities are still important, but in lesser percentages. Annuitizing assets, however, is likely to take a more prominent position for retirees going forward as concerns about Social Security and rising healthcare costs continue to pose threats to retirement income.

Expected top investment vehicle use in the future

ETFs Equities Alternative investments

Fixed, variable and indexed annuities

Fixed income


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5. A Changing Financial Professional Landscape

Firms are facing increasing challenges particularly around attrition, as financial professionals break away to RIA status—seeking a more entrepreneurial opportunity and the pursuit of potentially higher compensation. In addition, an aging financial professional population is witnessing higher financial professional attrition rates that may be in part due to the complex regulatory environment.

As the role of the financial professional changes, successful financial institutions are taking an active role in providing the support and tools they need to remain competitive and differentiate themselves. Some examples include:

› Succession planning and recruiting

› Financial professional training

• Break away to independent status

• Aging/retiring

• Succession planning and recruiting

• Financial professional training

A ChangingLandscape

Solutions

Challenges


Succession Planning and Recruiting Succession planning is a critical concern of financial firms, as is attracting and training new financial professional talent. The role of the financial professional can be less appealing to a younger generation enamored with today’s technology firms and startups. Yet the nature of financial services advice can appeal to Millennials’ desire to help and add value to society. Per a LinkedIn study, financial services ties with healthcare for the number two spot among top growing industries for Millennial job switchers.4 Notably, only 19% of financial professionals say recruiting is a major challenge with the next generation.

4 Deanne Tockey, “The Top Industries Gaining and Losing Millennials, according to LinkedIn Data,” LinkedIn, July 31, 2017, accessed August 8, 2017, www.business.linkedin.com/talent- solutions/blog/trends-and-research/2017/top-industries-gaining-and-losing-Millennials.


Building a financial professional force for the coming decades has firms taking multiple approaches to hiring as they are seeking:

› Experienced financial professionals with an existing book of business to hiring a mix of experienced and new Millennials

› Encore-career candidates, especially as some Baby Boomers opt to work longer and in new fields

› Young financial professionals to groom and grow over time, especially for smaller firms

› Supportive financial professional teams (versus solo practitioners) to secure succession planning and improve client servicing

Financial Professional TrainingA critical impact of all this change is the need for ongoing education and training to support financial professionals. Training needs cover the following:

› Onboarding for newly recruited financial professional talent, such as young professionals and those from other industries

› Proprietary investment model and recommendation processes

› New products, including any potential new share classes

› Ongoing regulatory and compliance policy and process changes

› New technology tools, including online and collaboration tools, as well as improved dashboards and client-facing platforms, such as digital engagement platforms

Firms and their financial professionals—both those that work for large, well-resourced enterprises and those in entrepreneurially-minded firms that permit creative flair, are navigating a path to a new future.

Finding the Best ApproachFirms and their financial professionals are experiencing some of the most dramatic changes to the industry in decades. They are transforming their businesses, balancing between regulatory and industry dynamics to keep current, profitable and well-positioned for the future.

Regulatory requirements and uncertainty, industry changes, an uncertain economic environment and social pressures are challenging to firms as they determine their best approach forward.

There is no one-size-fits all approach—and firms are employing varied strategies to turn these challenges into an opportunity to improve tools and education for financial professionals, to enhance their value to clients and to ultimately grow their businesses.

Firms and financial professionals should consider the following as they plan for the future:

› Further developments on the regulatory front, including possible changes to the DOL Conflict of Interest Rule as well as SEC involvement

› Where the industry lands with respect to mutual fund share class utilization

› Whether firms make a concerted effort to target Millennials

› How digital engagement evolves over time as more firms add capabilities

Regardless of the recruitment effort, financial professional respondents show a commitment to the business, equating business transformation with opportunity.

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Respondent Profile

Financial Professional Definitions

For the purposes of this study, financial professionals include the following categories:

› Registered investment advisors (RIAs): These fully independent advisors conduct business under their own RIA and are regulated by the SEC or their state securities regulator depending on the amount of assets under management.

› Broker-dealer affiliated advisors: These advisors conduct part of their business using a broker-dealer. They can be further divided into two groups:

– Hybrids: Advisors have their own RIA registered with the SEC or state securities regulator. They have FINRA 7 and 65/66 licenses.

– Dually registered: Advisors may operate as an independent advisor representative (IAR) under their broker-dealer’s Corporate RIA. They have FINRA 7 and 65/66 licenses.

› Registered representatives: These financial professionals conduct all of their brokerage business under broker-dealers and have FINRA 7 and 63 licenses.

Table A: Financial Professional Representation

Financial professional type

Percentage (N=290) Financial professional type

Percentage (N=290)

RIA 27% Registered representative 29%

Hybrid advisor 15% Private bank 9%

Dually registered advisor 20%


Table B: Financial Professionals’ Years of Experience

Number of years Percentage (N=290) Number of years Percentage (N=290)

Fewer than 3 years 8% 15 to 20 years 15%

3 to 8 years 36% 21 years or more 12%

9 to 14 years 29%


ABOUT BNY MELLON’ S PERSHING

BNY Mellon’s Pershing and its affiliates provide a comprehensive network of global financial business solutions to financial professionals, broker-dealers, family offices, hedge fund and ’40 Act fund managers, RIA firms, and wealth managers. Many of the world’s most sophisticated and successful financial services firms rely on Pershing for clearing and custody; investment, wealth, and retirement solutions; technology and enterprise data management; trading services; prime brokerage; and business consulting. Pershing LLC (member FINRA, NYSE, SIPC) is a BNY Mellon company.

ABOUT AITE GROUP

Aite Group is a global research and advisory firm delivering comprehensive, actionable advice on business, technology, and regulatory issues and their impact on the financial services industry. With expertise in banking, payments, insurance, wealth management, and the capital markets, we guide financial institutions, technology providers, and consulting firms worldwide. We partner with our clients, revealing their blind spots and delivering insights to make their businesses smarter and stronger. Visit us on the web and connect with us on Twitter and LinkedIn.

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