Those of us in the ever-evolving financial services profession always have to be looking around the next corner and over the next hill. Your technology, regulation, best practices and consumer profile are all changing constantly. You have a choice between running breathlessly to evolve with the changes or finding yourself behind, irrelevant and without the resources required to catch up.

But how do you peek around that next corner? After talking with hundreds of advisors and interacting online with thousands more, I’ve identified five ominous challenges the profession will face and trends it will need to adapt to in the coming year.

Regulation: Winning the BI fight

Most of you know that the SEC proposed a new Reg BI disclosure regime this year, which was roundly criticized by the fiduciary advisory community and praised by the brokerage world. The stated goal was to create a clear disclosure statement that would address the biggest complaint that the SEC was receiving: Consumers had no idea who was regulated as a fiduciary under SEC oversight versus under the FINRA system. What does a “suitability” standard even mean, anyway, and how is that different from a “fiduciary” standard?

The commission’s “solution” was to introduce a new disclosure form, which included a new standard for brokerage firms (meaning, broadly, wirehouses and dually-registered advisors affiliated with independent broker-dealers) – and to call it a “best interest” (BI) standard.

The fact that the brokerage firms were cheering should give you a clue as to how effective this disclosure arrangement was likely to be. I was not the only person to note, in my comment letter to the SEC, that the “best interest” standard defined in SEC Proposal 34-83062 was no different (and even borrowed much of the same language) from FINRA’s website’s definition of “suitability.” The SEC was just rebranding the same (sales) relationship with consumers in language that would be more attractive to the consumer. In fact, polls suggested that consumers preferred to work with somebody who was allegedly working in their “best interest” over somebody operating under the confusing “fiduciary” standard.

Bigger picture, the whole disclosure proposal was loaded with jargon, and shied away from declarative language that would make clear who did and did not owe a full duty of care to consumers.

The SEC asked the RAND Corporation to do a consumer study of the proposals, and after reading that study over a few times, the bottom line is that the SEC is going to have a hard time defending the disclosures it has proposed. It didn’t really clarify anything, based on results from focus group participants.

So how can you “win” the Reg BI debate? Not by convincing the SEC that it should suddenly veer into a new course, and require all the brokerage firms to adhere to a fiduciary standard. Given the lobbying power of the brokerage industry, that tactic will fail. But consider what will happen in the coming year. We’re going to see a lot of very public debate about the standards that advisors and brokers are held to – which is exactly what the brokerage industry doesn’t want. The SEC will offer an amended proposal, which will once again have the brokerage industry’s fingerprints all over it, the press will criticize it, and the fiduciary advisor profession will point out that they serve clients in their best interests and wonder aloud why the brokerage industry can’t abandon its sales culture and join the fiduciary club.