Trends VS Fads
From the cars we drive and the cell phone we use to the clothes we wear and the way we live our lives, our preferences are always changing. Most people have thrown out their CDs, iPod, and acid washed jeans yet, fuel-efficient cars, green energy living, and cell phone apps are still popular. We must be careful to identify what is a trend and what is a fad, or we risk wasting our time and money.
So, how can you tell a trend from a fad? I believe the key differentiator is time.
When I read headlines from my favorite online sources saying things like “Custodian Price Wars with Zero Commissions” or “Firms Paying Large Upfront Transition Dollars”, I am skeptical because these are new concepts that have not passed the test of time. They are exciting topics and surely garner many clicks but must be approached with caution rather than immediate action.
Similarly, when RIA firms offered equity to IARs, many professionals and publications were quick to call this the next big trend. Only later did we learn that dilutable shares may have little to no book value. In the moment, this seemed like something that would catch on in the industry but, as time went on, it was revealed to just be a fad that was not worth the time or monetary investment.
On the contrary, fee-based business is a trend worth paying attention to. According to a McKinsey & Company whitepaper, fee-based assets now constitute 47% of total advisor assets and fee-based revenue represents 67% of total advisor revenue. Additionally, fee-based revenue grew 17% in 2018 while revenue from transactional accounts declined 5%.
A recent article on “The DI Wire” stated that the number of FINRA registered broker-dealers has dropped 23.8% in the last nine years, from 4,895 in 2008 to 3,726 in 2017. However, the number of firms registered only as investment advisers were up 22.6% from 24,147 in 2008 to 29,599 in 2017. These are trends worth understanding and are fundamental to running a better wealth practice because they have lasted over the years.
Executives who confuse fads for trends often become frustrated, confused, and fearful of innovation. This can create an environment of indifference and stagnation as leadership struggles to make their next move. Good leaders know the difference between trends and fads and make fact-based decisions, not guesses hoping to be correct.
Let's not succumb to knee-jerk reactions. When running your book or firm, listen with an open mind, consider all possibilities, resist rushing to judgment, and don’t change your behavior or business model without the proper due diligence. Most key changes in our business will evolve naturally and cannot be forced.
My advice is to form your opinions over time. Your business depends on it.
Rich DeSalvo
CEO and Founder
f3Logic, LLC
Where Fiduciary Freedom is First
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Advisory services are offered through f3Logic, LLC, a registered investment advisor.