More investors seeking financial advice are turning to lower-cost options

When John Rocca began earning enough money to start socking some away for retirement about 10 years ago, he took a time-honored approach to investing: hiring a broker from a large investment bank. But, like more and more Americans recently, he soon decided that approach to retirement investing wasn't working for him.

"I view a broker as they're working for a big firm and they're pushing products and they get paid commissions," said Rocca, 46, a commercial real estate consultant from the Los Angeles area. "I felt like they were pushing the product rather than wanting to be a true adviser."

So Rocca trusted his retirement planning and savings to 1080 Financial Group, a small Los Angeles firm that promises to act in the best interest of the client. Like other advisers who follow such a fiduciary standard, the firm charges a flat hourly fee or an annual percentage of the assets being managed instead of being paid commissions on the sale of mutual funds and other investments.

"They're putting my interests first," Rocca said.

His decision is emblematic of the dramatic changes reshaping the financial advice and management industry.

As baby boomers retire, younger Americans — particularly millennials — are questioning the conventional approach to retirement planning as their bank accounts grow big enough to start investing.

The conventional sources of financial advice to the middle and upper-middle class — brokers such as those at Merrill Lynch, and wealth advisers working for big banks — are under pressure as more people shift to self-managed 401(k) plans, IRAs and other accounts that use low-fee stock and bond index funds. And younger investors especially are moving on to automated programs known as robo-advisors that spit out suggested portfolios and investment options.

Demographics, technology and regulation are driving an industry shift that some warn could leave small investors unable to access the type of high-level financial advice offered to the wealthy by brokerage firms and big banks as those outfits focus on clients with at least $500,000 to invest.

Among the biggest change is a new federal regulation designed to prevent consumers from being steered toward IRAs and other retirement investments with higher fees or lower returns that benefit the advisers recommending or selling them.

Those conflicts of interest cost Americans $17 billion a year, according to the Obama administration.

The new rule from the Labor Department, which will be phased in over eight months beginning in April 2017, makes all retirement investment advisers into fiduciaries. That means they must put the client's best interests above their own.

The rule prohibits what Barbara Roper, director of investor protection for the Consumer Federation of America, called a "toxic web of financial incentives" for brokers, insurance agents and anyone else offering retirement investment services that often run counter to the consumer's best interests.

Overall mutual fund fees have been dropping as consumers have become savvier about expenses and sought cheaper investment categories.

Stephen Rischall said he co-founded 1080 Financial Group last year because he wanted to get away from the pressure he was under as a broker to sell certain funds and other investment products to earn commissions.

"If you're trusting someone with your financial decision, they should have your best interest first," Rischall said. "They should disclose conflicts of interest and they should be transparent in pricing."

The firm's annual fees start at 1 percent of the assets being managed, with no minimum account.

Rischall, 29, said he wants to help young people get started investing, a tough task after the trauma of the 2008 financial crisis.

Many financial planners are making more use of technology, said Pamela Sandy, president of the 24,000-member Financial Planning Association. But, she said, robots can't take the place of human advisers, particularly if the stock market sustains a major tumble.

"I really question whether someone is going to stay committed to their long-term goals if we have another market correction … and they have no one to talk to," said Sandy, a Cleveland financial planner. "A robo cannot hold your hand."