From the June 2009 issue of Investment Advisor • Subscribe!

Editor's Note: Different Trains

I've been covering the business of independent financial advice-givers for long enough that like high fashion, or low, I've seen styles run several cycles. As with hemlines, as the environment around advisors changes, the wise suggestions from industry sages seems to be in some kind of multi-year cycle. In September 1999, Mark Hurley and June Slowik wrote a research report that suggested that the independent advisor stood on the brink of a sea change that would transform the industry and leave many advisors, especially the small shops, particularly the sole proprietor, unable to stay in business. The era of the mom-and-pop advisory practice was on its way out, and we were on the cusp of the era of the large firm that could apply its economies of scale to serving clients and beating back the competition (seen then as the wirehouses, banks, and CPA firms).

In May 2009, that prediction seems quaint on the one hand, terribly wrong on the other, and on the third hand, worthy of further study. The sole proprietor remains in business, and in fact, the small advisory shop is still the rule in the business, not the exception. There are some very large RIA firms that are using scale to dominate a local area--think Aspiriant in California--and firms with national aspirations of dominance--such as Joe Duran's United Capital talks about forming a "national RIA"--but there are also small firms being founded even as we speak. I think of our Road to Independence advisor, Mike Patton, who by using his intelligence, ethics, drive, and software skills is building a practice that, were the first Hurley report to be believed, would be impossible 10 years on. (Mike has a feature how-to story this month starting on page 66 that details how he does financial planning.)

Look, too, at the two independent broker/dealer firms profiled in the cover story that begins our special section on the independent B/D space (page 40). Different in size, definitely, and in culture, possibly, but Capital Analysts and Securities America are prospering--along with their representatives--by taking different roads to success. As Philip Palaveev likes to say in quoting his grandmother, "there's a train for every passenger."

As is the case in this country, being able to prosper is not the same as actually prospering. To be able to succeed, you must also be able to fail. You can make mistakes, you can take missteps, and the competition can eat you and your lunch, as Russ Diachok points out in this first-person narrative of the "Darwinism" of the current day (page 58).

The presidents running those independent B/D firms are no starry-eyed optimists--they're hardheaded businessmen, and women. Yet they, too, are not letting the challenging market and economic conditions infect them with listlessness and despair. Our annual Presidents' poll (page 50) shows that they are taking steps to keep their ships of state running effectively while helping their reps use this challenging time to become more efficient themselves.

That's one of the lessons that the industry did learn after Hurley's dire predictions. A combination of better industry benchmarking and improved technology tools allows the independent advisor--be she RIA or B/D rep--to serve clients better and run a better business. That's good for everyone, and is good to keep in mind as our winter of despair turns, I fervently hope, into our summer of hope.

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