There's a Sale on Financial Advice
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What headlines set the scene for fees falling in financial advice?
With your money briefing, I'm Charlie Turner for The Wall Street Journal in New York. Finally, the fees that Americans pay for financial advice are coming down. Wall Street Journal reporter Lisa Belfast will discuss this in a moment with J.R. Whelan. First, here are some top money headlines. The Wall Street Journal's hurt on the street says America's banks Friday provided a timely reminder that the world isn't ending.
How did recent bank earnings and Fed policy influence markets?
Banks are, of course, beneficiaries of higher interest rates, the main factor driving the Dow Jones Industrial Average down more than 1,300 points the prior two days. But quarterly results from JPMorgan Chase, Citigroup and Wells Fargo also pointed to a strong underlying economy. JPMorgan and Citigroup beat analysts' expectations for earnings and even troubled Wells Fargo turned in a decent quarter thanks to cost reductions. For most banks, federal reserve rate increases are still a net positive, as rates on business and credit card loans rise faster than deposit rates. This was certainly true at J.P.
Why are advisory fees finally starting to come down now?
Morgan, where net interest margins expanded to 2.51 percent from 2.46 percent in the prior quarter. President Trump has said that the Federal Reserve's interest rate hikes are out of control and worries about the rising interest rates fueled a huge sell-off on Wall Street. But it looks like the Fed is standing behind those rate hikes. According to the Wall Street Journal's Nick Timros, central bank officials see broader forces, including declining unemployment, inflation's return to normalcy, and a fast-growing economy pushing interest rates higher. Also at play here are federal budget deficits driven by tax cuts and spending increases. Larger deficits mean the U.S.
How is technology (robo-advisors and automation) reducing advisor costs?
Treasury is issuing more bonds and bills to finance the shortfall, prompting investors to demand a higher interest rate in return. Coming up, fees for financial advice are coming down. J.R. Whalen talks with The Wall Street Journal's Lisa Belfast in a moment. This is your money briefing from The Wall Street Journal.
Seems like prices are going up everywhere, except the fees for stock trading and various funds.
What role do younger clients and inheritance trends play in fee pressure?
And while those fees have come down significantly over the past several years, fees for traditional investment advisors have held steady until now. Wall Street Journal reporter Lisa Belfast is here with details. So, Lisa, this is a pretty big change in the business. Many investors currently pay between 1% and 1.5% for human advice. Some big players are jumping in and reducing their fees.
The price across the financial services industry, the cost of investments are falling.
How are advisors responding—will human advice disappear or change?
But one thing that's held steady is the cost of human advisors. We're starting to see some signs that prices are coming down. Some firms are cutting rates in order to remain competitive. And it's also happening as technology is making some of the job easier to do.
And so technology plays a big role here in the advisory business. And that's one of the reasons why these fees are coming down?
Yeah, so technology has made asset allocation easier to do and cheaper. Robo-advisors are charging between about 30 basis points and nothing to do asset allocation. Technology is also making advisors more efficient by helping them with certain tasks like generating emails to clients, things that they would normally spend a lot of time doing. So it makes doing the job easier to do, and then they can take on more business, charge lower rates for clients.
And in terms of these advisory firms being more competitive, they're dealing with a younger generation coming in, inheriting trillions of dollars from their parents. It's the children of baby boomers that are now essentially shopping around for advice, and you've got to be able to step in and offer them an attractive fee package.
Yeah.
Yeah, some advisors say that their younger clients, the ones inheriting their parents' money, are asking tougher questions about fees that the older generations never asked. So some of the fees that maybe their parents didn't realize they were paying, the kids are asking, and they know that there are cheaper options out there.
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Chapters
6 chapters
1
What headlines set the scene for fees falling in financial advice?
0:05–0:28
2
How did recent bank earnings and Fed policy influence markets?
0:28–1:04
3
Why are advisory fees finally starting to come down now?
1:04–1:42
4
How is technology (robo-advisors and automation) reducing advisor costs?
1:42–2:12
5
What role do younger clients and inheritance trends play in fee pressure?
2:12–2:41
6
How are advisors responding—will human advice disappear or change?
2:41–6:00
Speakers
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