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The Evolution of the Financial Services Industry

By Jim Miller, CFP, President & CEO

I was recently preparing for a meeting with a client and started reflecting on the changes I have witnessed in our industry and company since I joined the profession in 1985. In fact, if we go back another 20 years to the 1960s, the transformation is truly fascinating. During the past 40 years, our society and the financial services industry have seen an explosion in the amount of readily-available information, a proliferation of choices and ever-increasing complexity.

Let’s look at changes to the financial services industry from the perspective of
three generations of couples facing retirement.

My Grandparents’ Generation
My grandparents retired in the 1960s without a great deal of analysis or planning. They lived frugal lives, and a combination of pension and social security income covered their retirement expenses. They had a small pool of financial assets available to supplement their monthly income, owned their homes outright and had no debt.

They knew nothing of financial planning; the concept had not been invented. They had different financial service providers, each focused on specific products. They borrowed and saved money at their bank. They bought insurance from an insurance broker, and they occasionally bought and sold stocks from a stock broker. They prepared their own tax return and had an attorney prepare a simple will.

None of my grandparents’ financial service providers viewed their role as planning the bigger picture and providing advice on their overall financial situation. In general, the financial industry was focused
more on selling products than on delivering service.

From a financial perspective, it was a relatively simple world. There were few financial alternatives available to my grandparents. Many of the financial products and services that are common today either did not exist or were essentially unknown in the 1960s.

My Parents’ Generation
When my parents retired in the 1990s, their retirement planning was far more complex than that of my grandparents. They had a combination of pension and defined contribution plans, and several choices for receiving their pension savings and investing their retirement plan assets.

The financial world had changed dramatically from the 1960s, with thousands of new financial products and services from which to choose. Financial service providers now came in many varieties and
carried many designations and titles. Most of the new titles included the words “advisor” or “consultant” to communicate a focus on the client, rather than on the sale of products. Unfortunately, most of these advisors and consultants were still commission-based product salespeople using their new titles to
better market their products.

The financial services industry, however, had matured. There were a growing number of salary based providers that served as fiduciaries who were focused on the client’s situation, agreeing
to always act in the best interests of their clients.

My Generation
When I retire in 2022, I anticipate the transition from product orientation to client orientation will be complete for the majority of the financial services industry. The volume of information and choices will have continued its expansion, creating more complexity and potential confusion. It will be rare for individuals to have a company pension, but it is likely that they will have multiple retirement plans in the form of employer 401k plans and IRAs—all requiring that they make decisions regarding investments and
distributions.

Individuals and organizations will demand that the financial professionals they hire are committed to always acting in their best interests to help them wade through this complexity and to providing
guidance with their most important financial decisions.

How MTC Fits into this Changing World
Long before major financial organizations began spending millions of marketing dollars promoting the trusted advisor image, Merchants Trust Company was already serving as a fiduciary. This has made our transition to advising clients on their overall financial lives a smooth process. Historically, our core service
has been investment management combined with assisting our clients with the distribution of their wealth (estate planning). More recently, we have expanded our scope to include all financial areas that impact the accumulation, protection and distribution of our clients’ wealth.

The best way to illustrate changes within Merchants Trust Company is to contrast a typical client meeting in 1985, my first year with the firm, with a typical meeting today.

1985
In the mid 1980s, our client investment portfolios typically held 25 to 30 blue-chip stocks and 10 to 15 high-quality bonds. The meeting focus was a discussion of the performance of these individual securities and the various factors influencing that performance. There was also often discussion of estate planning
issues, with an emphasis on how to transfer assets in the most tax- and cost-effective manner.

2007
Today, the meeting focus is on the clients’ overall financial situation. Investments continue to be a critical topic, but frequently we are also working with our clients to help them get all of their financial affairs in order. The areas in which we can provide direction for our clients have expanded significantly.
Below, is a list of financial issues that often impact our clients. Our objective is to spend a portion of each client meeting reviewing one or more of these important issues as they relate to our clients’ lives.

  1. Investments
  2. Income Needs
  3. Distribution of Wealth at Death
  4. Charitable Inclinations at Death
  5. Gifting to Children or Descendents
  6. Charitable Gifting during Life
  7. Retirement Planning (Including qualified retirement plans and IRAs)
  8. Incapacity Planning
  9. Titling of Assets
  10. Insurance Needs
  11. Debt Review
  12. Business Succession Planning
  13. Stock Options

The evolution of the financial services industry during the past 40 years has provided challenges and opportunities for both consumers and providers of financial services. This evolution represents positive change. We are confident that our experience serving in a fiduciary capacity (required to always act in
our clients’ best interest) gives us an advantage because we provide objective advice and guidance to our clients. We look forward to an opportunity to work with you on your most important financial issues.

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