Several months ago I was having lunch with an associate in the business who works for another firm, who asked, "How many banks and brokerage firms do we really need?" He was suggesting that there would be a consolidation in our industry. He was right! Every industry goes through stages and our industry is no different. Often the changes come, not as a welcome friend, but as an uninvited guest.
To examine this, let's go back to the 1970s. As foreign competitors began to rival American auto manufacturers, the auto industry began to innovate by replacing people with machines designed to do the same work for much less. They didn't take coffee breaks or call in sick and this provided a way for the industry to enhance profits by cutting expenses and increasing output. Unemployment increased as the industry underwent a massive restructuring.
The financial services industry has been in a transformation phase of its own. One-time behemoths, the rock-solid large conglomerates, are crumbling at their very foundations. If someone would have foretold this a decade ago, who would have believed it? So are strong companies buying weak companies, or is this simply a way to keep the entire financial system from collapsing? Central banks are leveraging taxpayer dollars to "prop things up." So I suppose the government will just print more money to meet this need, and you know what that could bring. That's right, inflation. I only hope it won't be hyper-inflation.
From the brokerage scandals of a few years ago to today's highly mismanaged balance sheets, large firms have received a serious blow. Had it not been for the attention of the Federal Reserve, they might well have been pushing up daisies by now.
This problem presents yet another opportunity for independent advisors to establish themselves as the advisor of choice. Clearly, objectivity will be even more sought after as a result of the present situation.
