From new mergers to changing regulations, 2019 has been a busy year and it shows no signs of slowing down. So what can the industry expect to see in 2020? To shed some light on the changes that lay ahead, it's important to look back at the most significant events of the year and how they've reshaped the advisory landscape.

Key Takeaways

  • The recent Charles Schwab-TD Ameritrade merger is going to consolidate two of the major custodian platforms into a single one, which could limit options for advisors.
  • Mergers and acquisitions have been a key trend of 2019, and they're likely to continue as we move into 2020.
  • New regulations including Regulation Best Interest are changing the advisor-client relationship, though not all advisors are on board with the changes.

How the Charles Schwab-TD Ameritrade Merger Is Affecting Custodian Platforms

Few things have impacted the advisory landscape this year as much as the recent merger of Charles Schwab and TD Ameritrade. As two of the top custodian platforms, the merger has left many advisors worried that they could have fewer asset management options moving forward. But those fears don’t take the full picture into account.

While options are likely to be more streamlined for advisors moving forward, trading costs are too, a benefit that advisors will be able to pass on to their clients. What’s more, since the integration of the two platforms is predicted to take at least three years, advisors will have time to adjust to the changes—and to seek out alternative solutions if needed.

Why Mergers and Acquisitions Are Reshaping the Industry

The Schwab-TD Ameritrade merger has been the biggest merger of 2019, but it’s not the only one. In fact, as HighTower CEO Bob Oros recently pointed out, mergers and acquisitions have been a big trend this year and they’re going to increase even more in the year to come. “We’re seeing the foreshadowing of it now,” says Oros. “The way more advisors aren’t just kicking tires but actually signing NDAs, sharing data and getting indications of value—all these signs are precursors to doing something."

This is especially true for advisors considering growth-focused mergers, but it also applies to the financial services industry more broadly and includes deals such as the one between Texas Capital Bancshares and Independent Bank Group which was confirmed at the beginning of December 2019 for $3.12 billion. It also includes the recent acquisition of United Capital by Goldman Sachs for $750 million. As we head into the year ahead, we’re likely to see even more of these types of mergers.

How Regulation Best Interest Is Changing the Advisor-Client Relationship

While mergers have shaken up the industry this year, they haven’t been the only big trend. Another key development has been the passing of the Regulation Best Interest rule which aims to improve safeguards for investors and standardize advisor conduct in the process. Originally proposed in the spring of 2018, the rule was passed by the SEC in June of this year, though it hasn’t been embraced by everyone. “Regulation Best Interest will likely hurt retail investors who need quality advice that puts their interests first,” says Jon Stein, founder and CEO of Betterment.

Now fully in effect, the rule is still being criticized for conflating the roles of broker-dealers and advisors without accounting for the different services they provide. “Certainly I think the most significant key ‘trend’ of the advisory space this year was the issuance of Regulation Best Interest, which may shape regulation of financial advisors for the next decade... and the XYPN lawsuit against Reg BI, which, if successful, would vacate Reg BI and put advisor regulation back to the drawing board for the coming decade!” says Michael Kitces, partner and director of Wealth Management at Pinnacle Advisory Group.

The Death of the Fiduciary Rule

Another key event this year was the attempted resurrection of the Fiduciary Rule. Originally proposed in 2010, the rule has been one of the most debated topics in the finance industry, with many brokers and investment firms doing everything possible to stop it from being enacted. After being struck down in June of 2018, the rule was thought to be dead in the water until former Department of Labor Secretary Alexander Acosta announced in May that the DOL was working to resurrect it. As it stands now, the rule has not been passed. 

While it's hard to gauge exactly what types of changes we can expect in the year ahead, one thing is clear: the financial services landscape is undergoing a seismic shift.