The financial advisory business can be an incredible challenge for many who work in it, even when business is going well. And recent trends in the markets may make things even harder for some. A low interest rate environment has combined with choppy markets and growing customer expectations to create what may seem like a perfect storm for many - and these are only the general factors that affect everyone. Some advisors also face additional personal challenges within their own practices and lives that are making it even more difficult to be successful. (For more, see: Trends Challenging Financial Advisors)

Here Come the Robo-Advisors

One of the biggest challenges facing many advisors and companies right now is how to handle the influx of robo-advisors that have appeared in the past five years. These automated investing programs can now perform many routine money management chores that were previously done by humans, such as portfolio rebalancing, dollar-cost averaging and tax-loss harvesting. And these digital programs are likely to become more complex and able to follow increasingly sophisticated investment strategies as time goes on. They can do all of this for a fraction of what the average human advisor currently charges. Most money managers will charge a little over one percent for their services, but some robos will do many of the same things for 35 basis points or even less.

Advisors today basically have two choices when it comes to robos: they can either try to beat them by providing a human element to their advisory services that cannot be duplicated by a computer or they can join them and offer automated trading as one of their own services. (For more, see: Which Robo-advisor is Best for Financial Advisors?)

Many advisors will likely attempt to do both of these things in their endeavor to continue providing relevant advice and service to their clients. But they may be forced to lower their fees in order to compete with these computerized trading systems regardless of their approach. And those who work for large firms such as Merrill Lynch or Edward D. Jones will be required to adhere to their employer’s approach to this factor, regardless of their own personal preferences. Everyone in the business will also be required to master basic digital technology going forward, whether they work alone, with a team or for a large firm. Skype, IM, smartphone apps and other essential tools are going to become standard fare for the industry if they are not already. (For more, see: Are Robo-Advisors an FA's Worst Nightmare?)

Time to Get Out

Another challenge that many advisors face is their own retirement. A third of current practicing advisors will retire in the next 10 years, and those who have established practices will need to create a business succession plan if they have not already done so. For those who have younger partners or children that work with them, this may be a relatively simple task. Those who work alone will need to find a buyer that they know will take care of their clientele after they leave. Advisors who have employed specialized trading strategies may need extra time to train their replacements in order to ensure a smooth transition into retirement. (For more, see: How to Ready Your Advisor Practice For Sale.)

The Market Dilemma

Another major hurdle that has beset many advisors during the past 10 years has been the markets themselves. It’s been ages since issuers of fixed-income securities have been able to produce any offerings that yield an exciting rate of return, and while interest rates are bound to start rising again soon, it may be much longer before companies and governments can offer bonds or preferred issues that pay a rate high enough to attract buyers. While the markets have finally rebounded from the lows that were hit in 2008, they have pulled back again in recent months, erasing many of the gains that investors held back in the spring. (For more, see: How Interest Rates Affect the Stock Market.)

Regulatory Hurdles

Another source of potential worry for many advisors comes from the Department of Labor’s recent proposal to elevate all advisors everywhere to a fiduciary standard of conduct. This proposal may require those who earn a commission to sell products to disclose their earnings to customers, which of course may substantially impact their bottom lines. The new restriction on IRA rollovers may also put a crimp in some advisors’ plans, especially those who work with clients who are retiring and need to do something with their qualified plan balances. (For more, see: Ethical Standards You Should Expect from Your Financial Advisors.)

The Bottom Line

Some challenges that advisors face, such as tepid markets and regulatory issues will always be part of the business. Other factors such as competition from robo-advisors and getting out of the business while protecting clients present new obstacles that most advisors have not previously encountered. But those who are able to adapt to the changing marketplace and stay abreast of new changes can put themselves in a position to enjoy a successful career for many years to come. (For more, see: Top Digital Age Tips for Financial Advisors.)

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