How investing and advice have changed in 30 years

Here at The Evidence-Based Investor, we’re big fans of the evidence-based fund management company, Dimensional Fund Advisors.

Dimensional is celebrating 30 years working with financial advice firms. It recently produced a video in which seven wealth management professionals explain how the advice profession and the wider investing industry have changed in that time.

As you’ll see from the video, it has certainly been an extraordinary transformation.

You may be interested to know that Dimensional has also compiled a list of 30 ways in which investors can benefit from the transformation described in the video.

Here is the list in full:

TEN ENHANCEMENTS TO FINANCIAL ADVICE

1. The advice industry shifts from ringing up sales to building client relationships.

With the rise of the independent financial adviser, a new financial advice model takes hold—one that puts the client at the center and changes the way advisers charge for services.

2. The regulatory environment signals that advisers ought to act in clients’ best interest.

Regulatory rules obligate registered investment advisers to act in the best interests of their clients, which sets a higher standard for serving them.

3. Investment advice evolves into comprehensive wealth management.

Over time, investment advice advances beyond individual security selection to encompass a broader scope of services, from asset allocation to wealth management. Advisers focus on understanding each client’s personal circumstances and objectives.

4. Financial advisers collaborate with other professionals on behalf of their clients.

To help clients manage multiple aspects of wealth, advisers take a central role in coordinating the services of accountants, attorneys, investment managers, insurance providers, and other third-party professionals.

5. Improved client discovery tools enable more relevant plan design.

Advisers apply new methods to identify a client’s financial objectives, attitude toward risk, return expectations, and financial traits. The insight informs more advanced financial planning and investment approaches.

6. New technologies and research help clients better understand probabilities of outcomes.

With advanced research and robust analytics tools, advisers offer clients a more sophisticated view of the range of possible outcomes associated with different investment and personal budgeting strategies.

7. Advisers build cost-efficient, globally diversified portfolios for individual investors.

Strategies based on financial science offer building blocks to help advisers design customised portfolios that systematically pursue capital market returns.

8. Digital technologies transform the ways advisers communicate with clients, prospects, and the world.

Access to global information networks expands an adviser’s influence as publisher, educator, thought leader, and coach. Serving in these multiple roles helps to create more informed, disciplined investors.

9. Advisers join professional communities where they share best practices and ideas that can benefit clients.

These communities offer investment education, quantitative tools, and professional networking opportunities to help advisers build and manage their practices while elevating the client experience.

10. Advisers develop succession plans to ensure business continuity for their clients.

Advisers recognise the importance of planning for business and leadership succession, which can help provide continuity of services and support for both current and future clients.

TEN WAYS INVESTMENTS AND MARKETS HAVE EVOLVED

1. Financial science becomes a driving force in well-designed portfolios.

Academic evidence casts light on the challenges with traditional investment approaches, such as security selection and market prediction, and pushes advisers toward more robust, research-informed investment strategies.

2. Theoretical and empirical research identifies drivers of investment returns.

Research shows that stocks offering higher expected returns can be identified using company size, relative price, and profitability. For bonds, information in the yield curve and credit spreads reveals higher expected returns.

3. Global information and competition further advance the market’s pricing power.

Each day, the global security markets process billions of dollars in trades between buyers and sellers — and their collective wisdom helps drive securities prices toward fair value.

4. Commissions on securities trades have dropped.

The rise of electronic trading networks diminishes the influence of large market exchanges, while reduced broker commissions bring lower average trading costs across markets.

5. Bid-ask spreads on securities trades have compressed.

Advanced technology and multiple trading venues reduce implicit costs by narrowing bid-ask spreads across trades. Investment strategies that have more trading flexibility can further reduce these spreads.

6. Improved access to global markets enables broad portfolio diversification.

Advisers once had limited fund choices for building global portfolios. Today, they can work with fund managers that offer diversified, value-added access to Australian, New Zealand, other developed and emerging markets.

7. Average fund expense ratios have fallen.

The market’s information-processing power works against high cost fund managers, who struggle to outperform through stock picking and market timing. Investors increasingly favour lower-cost, transparent investment approaches.

8. Cost-effective implementation has become a key differentiator in asset management.

Research into the capital markets is publicly available. What matters is how asset managers can effectively implement the ideas in real-world investment strategies.

9. Securities lending has become a source of added value in many investment vehicles.

The best investment managers continually work to incrementally improve returns. One value-added approach is to lend a portfolio’s securities to third parties for a fee.

10. Financial advisers gain access to investment solutions used by sophisticated institutions.

The investment industry has evolved along with markets. Advisers can now apply strategies and tools that were once available only to large institutional investors.

TEN ATTRIBUTES OF GREAT FINANCIAL ADVISERS

1. Purposeful: They have a clear mission to serve clients and help them reach their goals.

Great advisers want to do great work for their clients. They stake their business on doing the right thing — and know that business success will follow.

2. Empathetic: They know they cannot effectively serve clients without genuinely relating to them.

To serve well, an adviser must assume a client’s perspective. Empathetic advisers put themselves in their clients’ shoes and work to understand what matters most to them.

3. Authentic: They reveal their true selves to clients.

Effective advisers elevate the connection with clients by revealing their own personal stories. A willingness to be transparent and vulnerable helps build client trust and encourages real communication.

4. Intellectually curious: They continue to search for the most robust solutions for clients.

Great advisers are on a continual path of professional improvement. They are lifelong learners, open to new ideas and committed to honing their technical knowledge and skills.

5. Personally inquisitive: They work hard to uncover what’s truly meaningful to their clients.

Engaged advisers also have mastered the personal side of advice. They ask probing questions to better understand their client’s views on money and life before creating a plan.

6. Quiet: They listen more than they talk.

Active listening encourages clients to reveal their deeper thoughts—and often, an adviser’s best answer is to ask a question that sparks creative analysis and self-discovery.

7. Passionate: Their unwavering desire to do well for others drives constant improvement.

A strong sense of conviction to do right by clients compels great advisers to continue honing their craft and ultimately enhance the value clients receive.

8. Entrepreneurial: They run their practice as a business and plan strategically for the future.

Advisers can better serve clients when they run successful firms. Just as they encourage financial responsibility in their clients, top advisers apply a high standard to managing their own enterprise.

9. Honest: They set realistic expectations about controllable actions and probable outcomes.

While the best advice may not be easy to hear, great advisers communicate essential truths about money and investing so that clients have realistic expectations about their wealth.

10. Disciplined: They don’t let market swings or media messages drive impulsive actions.

Effective advisers know the importance of preparing clients to navigate changing markets and apply discipline at crucial times, which can lead to a more enjoyable and promising financial journey.