Use “Self-Distancing” To Make Better Decisions

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Use “Self-Distancing” To Make Better Decisions

March 10, 2015

by Dan Solin

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Seth Klarman’s 2021 Letter: Baupost’s “Never-Ending” Hunt For Information

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Before I became a consultant and coach to a number of financial planning firms, I used to run my own investment advisory firm. I believe the advice I give today is far superior to the actions I took when I managed my own firm. Now I understand why.

Decisions confronting advisors

This is, undoubtedly, a challenging time to be an investment advisor. New technology is changing the business and significantly reducing costs. Ric Edelman, chairman and CEO of Edelman Financial Services, recently predicted that robo-advisors will put most of the current crop of investment advisers “out of business.”

Whether or not that dire outlook proves true, it’s very clear that the landscape is changing. Pure “investment advice” is becoming more of a commodity. As such, much of the work advisors do can be relegated to algorithms and implemented online.

Compounding the problem, the costs of increased regulation make it difficult for smaller firms to maintain profitability. This combination of price competition and higher expenses is putting traditional advisory firms under intense pressure.

According to Michael Kitces, the average profit margin of a “typical” advisory firm is 22%. The looming possibility of a market correction could decrease profits at advisory firms by as much as 25%. Kitces believes that “the greatest risk for most firms may be that their profit margins are still too small to withstand the next bear market when it comes along.”

Given all these issues, advisory firms are confronted with many decisions that will impact the future of their business. As a result, it’s increasingly important to maximize the possibility of making the right choice.

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