BY MAUREEN N. MARATITA
Sanjiv Mirchandani, president of Fidelity Clearing and Custody Solutions in Boston has accumulated years of expertise in the financial services industry.
He was on Guam as keynote speaker at the March 7 ASC Trust Raymond James Annual 401(k) and Investment Conference at the Hyatt Regency Guam.
His topic was the future of financial advice in the United States, he told the Journal. “And the reason that’s an area I know something about is I’ve worked in the financial services landscape for over 30 years now.”
Fidelity has researched the subject and developed that into a presentation — the Future of Wealth Management, Mirchandani said.
“What we’ve done is a lot of research and observation around what is working in the financial advice business, what is not working, what needs to change, what forces have propelled change,” he told the Journal.
Mirchandani said the presentation covers changes in consumer make-up and needs. “We talk a lot about the different generations and life stages, different wealth levels and what their unique challenges are. There is a strong focus on retirement — which is the big one,” he said.
In addition, Mirchandani talked about what different approaches financial advisors take, how they add value, and likely future changes.
Additional topics included the regulatory landscape and the effect of technology on the future of financial advice.
In general, he told the Journal, the U.S. system for wealth management and asset management is unique with many choices and lower costs than in other countries.
In terms of delivery, he said, multiple standards of care exist.
“There’s something called suitability, which is what broker-dealers have had historically to follow. In broad terms, suitability is making sure that the product you sell is suitable for your customer.
“There’s a higher standard of care that is becoming much more prevalent, called the fiduciary standard, which requires you to put your customer’s best interests ahead of your own. It tends to be more expensive to deliver, but it is a higher standard of care.”
Mirchandani said a market move to fiduciary standards — encouraged by regulators — is a positive one for consumers.
“Consumers’ need for financial advice is incredibly strong. There’s an enormous amount of wealth in the U.S. Total consumer wealth in the U.S. is in excess of $100 trillion — that’s reported by the Federal Reserve,”
Such wealth includes assets, employer retirement plans, home equity and small business value.
Baby boomers, or people born between 1946 and 1964, have begun retirement. Mirchandani said, “There’s going to be a lot of inter-generation wealth transfer coming out of that. … It will continue for several more years. That results in a lot of liquidity events in the population. People grow over from an employer retirement plan to an individual retirement account, or they might sell a small business … there’s a lot of reorganization going on — people selling big houses in the suburbs and moving to smaller places in the city. All of this is going to result in a lot of what we call ‘money in motion’ life events.”
People deal with financial planning due to events, whether that is the birth of a child or retirement, he said.
“Retirement can be a time of unbelievable promise and opportunity, particularly because some people think we’re on the verge of a 100-year life span. With that comes a fair amount of stress; how are you going to get income and not outlive it,” Mirchandani said.
Technology is going to continue to change financial services, he said.
“As consumers use technology in other fields, they want some of those same experiences from their advisers.” Fidelity offers online financial planning and review through eMoney Advisor to meet the trend towards monitoring investment strategy goals and progress.
“It’s important to understand how long do you have; what’s your goal; what’s your risk tolerance and what’s the best way to get from A to B. Then design your investment strategy at the end of that, not start off with an investment strategy,” he said.
As to managers of trusts, 401(k)s and social security funds, Mirchandani said, “They should be intelligent buyers of services. … They’re really buying agents on behalf of a large block of people who are far less sophisticated. Their job … in a fiduciary responsible manner is to pick the best advisors, the best approaches, the right amount of choice, the lowest cost and put it all together into a benefits program that is going to ensure the financial wellness of their participants.” Still, he said administrators can only do so much to prevent people from removing money from funds. “It’s a tragedy. There’s so many of those decisions being made and [people] shortchanging their own futures.”
Mirchandani said there is a need for diverse financial advisors as investor profiles change to include more women as decision-makers, in the workforce and out-earning their spouses, as well as ethnic diversity among advisors.
“Data shows there’s approximately 310,000 financial advisors in the country; it’s not a lot,” he said.
Younger people avoid the industry because of the belief it involves sales and cold calling, he said, though advisers do need to build up a practice of clients. “It takes a while to build up a base of customers; it’s helpful to work for a large employer where you can get those type of referrals. Once you build a practice … it can be a wonderfully fulfilling profession. You can get well-compensated economically.”
Meeting clients remains a huge part of what he does, Mirchandani said. “If you don’t have direct interaction with clients of every type, you will lose touch with the business. … Getting out there is very important.” Based in Boston, Mass., on this trip he visited contacts in Japan as well as Guam. “I’ve picked up so many things that will be useful to me when I go back,” he said.
He estimated he spends about a third of his time meeting clients and a similar amount of time in two other areas. “I have to spend a fair amount of time running the business and that involves strategy discussions, shaping our strategy around products and technology and financial management, budgets and all those aspects of running a business,” he said.
He also spends about a third of his time meeting internally and on administrative tasks.
Despite outside employment offers, Mirchandani said, “I’ve been very lucky to be at Fidelity. It’s been a really great place to practice my craft. As a private company, it gives you a lot of resources and a lot of latitude. It’s very entrepreneurial for a large company.”
As for relaxation, he enjoys playing guitar with a group performing rock music at various functions. “We have a corporate band called Hi Fidelity.” mbj