One of the more enjoyable aspects of my job is the opportunity I have to speak to smart people about the business of independent advice and the issues that are always bubbling under the surface, and which often see the light of day at some point.
Thus over a period of a few weeks in March, I spoke to Bill Crager of Envestnet, Bernie Clark of Schwab Advisor Services, and Elliot Weissbluth of HighTower Advisors about the same subject: the future of the wirehouses and the continuing broker-drain from the employee-based broker/dealer model to the independent B/D and RIA worlds.
Envestnet released a white paper and held a Webinar during the month addressing how the fiduciary issue would affect the broker/dealer world. While as of the writing of this note on March 18 there is not a fiduciary obligation imposed on brokers under Senator Chris Dodd's proposed financial services reform legislation, the fiduciary juggernaut rolls on, and the white paper is a good briefing on how such an obligation affects the B/D model (spoiler alert: It's not such a bad thing after all).
Schwab released results of a new study on advisors conducted in January. It turns out, the study shows that a new frugality has taken root among both groups. As for Schwab, Clark said "we think $50 billion of the $180 billion" in broker money in movement now "will fall to the independent space." Finally, the news that HighTower had attracted yet another big wirehouse group--Strata Wealth Management from Rye, New York--to join HighTower led me to circle back with CEO Elliot Weissbluth, whom I hadn't spoken to at length since our cover story on the company and its advisors in August 2009. Business was already great, HighTower will be growing even more quickly with the $100 million in capital it had just raised, and the lawsuit that SmithBarney had filed against HighTower for supposed poaching of the Strata brokers was "baseless," and a "clear attempt to intimidate and deter," but nevertheless a "failed attempt," said Weissbluth (who happens to also be an attorney).
The subtext to all three conversations was that the wirehouses are at a transition point, typified to me by the fact that Sallie Krawchek of Bank of America/Merrill Lynch has felt it necessary to say that reports of wirehouse brokers going independent was "overblown." Do any of you recall the head of a major wirehouse even acknowledging the existence of RIAs, much less pooh-poohing their threat to the wirehouse model? That's a sea change showing that movement to the independent model has in fact spooked the big firms.
These conversations that yielded particular insights for me, and now perhaps you, from these industry leaders reminded me of the value of actual reporting in my business. It also made me think of the value of getting underneath the presenting statements of your clients (as the psychologists would say) to find out what's really motivating them and their decision-making, which allows you to help plan to meet their true goals. That's the message in our cover story this month with behavioral economist Dan Ariely, and in our profiles of the 2010 SMA Managers of the Year which follow. You have to get beyond the headlines to uncover actionable truth and insight. But then, you knew that already.