The Current "Future" Of Financial Advice

Today is "Back To The Future Day". On October 21st, 1985 Marty McFly first traveled in time to save his parent's high school romance. As we all know, the rest is history.

Many of the gadgets in the futuristic scenes became a reality. Flying drones, fingerprint recognition, smart clothing & wearable technology (remember those auto snugging boots?), and video glasses come to mind. A lot has changed in 30 years.

I was in 2nd grade when Back To The Future came out, so I don't remember what level the stock market was at or how financial advice was typically delivered. I did a bit of research on the subject. Here's how financial advice has evolved since the 80's, with a bit of nostalgia thrown in for more "seasoned" readers.

If you wanted investment advice in the 80's, you hired a stockbroker. You were pitched Individual Stocks. Vin Diesel gives us a hilarious example of stockbroker in action.

https://www.youtube.com/watch?v=4zakyg3thfY

These guys lived and died by the "ABC" mantra- Always Be Closing.

While there's still an extremely healthy amount of sales in the financial industry, most stockbrokers have re-labeled themselves as "Independent Financial Advisors". A growing number of financial salespeople have rebranded the Always Be Closing mantra to Always Be Cool- I like this kind of approach.

Merrill Lynch was the top dog in the 80's. They had the best research (so they say), fanciest offices, and highest paid brokers. If you weren't in the top 2% of the American earning public, Merrill wouldn't talk to you.

All you need today is $250 in your IRA and a pulse and they'll beg for your money. But, Merrill Lynch and Wall Street have such a tarnished image, the idea of doing business with a slick talking shiny watch wearing suspender packing broker has become offensive to most people. The investing public lacks a certain amount of trust in financial advice these days (rightfully so). Investors want someone who looks and thinks like them, without all the holier than thou I'm way smarter than you attitude.

There was no such thing as a Certified Financial Planner at the beginning of 1985. The concept of holistically planning out your financial future was piecemealed together by tax attorneys, bankers, and CPAs.

According to the most recent Bureau of Labor statistics, there are currently 223,400 registered financial advisors in the U.S. Many of these professionals offer Financial Planning Services. Most of them are (somewhat) qualified to deliver a Comprehensive Financial Plan so you can get on track and organized.

In the 1980's, investors got their investment information from the newspaper. I remember my Dad sitting at our kitchen table exclaiming something like "Our troubles are over..." after realizing his Microsoft stock went from 9 cents (March, 1986) to 29 cents (a year later). He might have actually said that after buying a lottery ticket, but that's ok, it fits well here. Those stock prices are real numbers by the way.

These days, we check market performance and account balances on our iPads while sitting on the couch watching The Walking Dead in HD on our 56 inch curved flatscreens.

Prior to 1987, credit card holders were required to pay off their balances every month. Holy crap- what a financial planning concept!

Today's credit card users... Well, you know....

At the beginning of the 80s there was no such thing as discount online trading. When eTrade first launched their service in the mid 80's, trades cost at least $100. Since there was no such thing as the world wide web yet, investors had to buy special machines to access a trading server.

Today you probably have 7 different devices in your house to access the internet. On any of these devices, you can open an account online, electronically transfer $$$ from your bank, and receive hundreds of Commission Free Trades. Many of these online brokerages will give you the same research capabilities firms like mine utilize.

A diversified portfolio in the 80s meant you owned shares Exxon Mobile, Proctor & Gamble, General Motors, and American Express- ironically all constituents of the Dow.

Now, any legitimate portfolio owns U.S. small & mid cap, international, emerging markets, various types of domestic and international bonds, as well as a few (debatable) asset classes like gold, real estate, and commodities. You own a few thousand stocks (hopefully) versus a handful.

Last on our list is how financial advisors get paid. The 80s were all about commissions. Want to buy a mutual fund? It used to cost you 8% just to buy into the thing. Even if your fund was lucky enough to earn the average 8% return of the stock market, inflation wiped out any real possibility of actually making a profit (unless you held that fund for decades; long enough for the sting of the initial sales charge to wear off). By the way compound, or "average" returns are Very Different Than Annualized Returns.

Today, commissions are very much alive and well. But, your local Edward Jones advisor now can also offer you a "Fee-Based" account. Instead of gouging you with a commission whenever you make a trade, today's financial advisors will only gouge you sometimes, like when you buy an annuity, insurance policy, or if for some archaic reason they still recommend an old school transactional brokerage account. Ok, there's still a lot of gouging, but at least there's an alternative- charging a percentage or fixed fee to manage your account.

In my opinion, the future of financial advice should be what the industry refers to as "Fee-Only". Commissions and backdoor revenue sharing agreements between brokerages and mutual fund companies should go the way of the dodo. Advice should be simply that- advice. Advice should not be disguised with the sale of a product. This continuing evolution will massively reduce the prevalent conflicts that have existed since well before Doc Brown and Marty McFly hit 88 MPH in their time traveling DeLorean.