2010 marks the silver anniversary for Tom Bradley, the outspoken head of TD Ameritrade Institutional. Reflecting on his tenure with the company and the RIA business as a whole, Bradley offers up insight on the importance of technology to advisor success, what financial reform means for the independent channel and what the future holds for the next generation of advisors.
Looking back on 25 years, if you said to yourself, "When staring out, I never imagined 'X' would have subsequently happened," what would that be?
I wish I could tell you that I had some incredible crystal ball and I knew everything that was going to occur. It was really more of a gut feeling on the direction in which this business was headed. When I first started, the RIA business didn't really exist; certainly not in the form it is today. Back then it was all about the discount brokerage business. People never really looked favorably upon the stock brokerage business. There was always a level of distrust by the investing public. It was 1992 when one of the co-founders of [TD] Waterhouse came to me and said "Hey, we just got this thing off the ground, this RIA business. I want you to run that along with a few other things, the fixed income area and the mutual fund area."
Did you know anything about it at that point, or was this completely new to you?
Not at that point. It was very early on. One of our competitors had gotten into the business and so we got into the business, as well. It didn't take me long to say "Wow! There's really something here. And this is different. This is interesting." At some point in 1992 I made a pitch to focus more on that particular business. And the company was willing to make a commitment to technology. This can be a great business for us, but you can't be halfway in. The key investments are generally around technology.
Was that technology a separating factor, a competitive differentiation?
No question about it. Technology today is table stakes, so to speak. But when we came out with VEO [TD's technology platform], it was the first platform that was totally Internet-based. Everybody was just starting to get excited about the Internet and the fact that they would be able to manage their clients' accounts from anywhere in the world as long as they had an Internet connection. Since then, we've made a number of upgrades to it. The latest VEO has been completely redesigned by our clients. We worked with a number of volunteer advisors over a two-year period to design the next generation. It's gotten some great reviews.
Was the recently passed financial reform legislation needed, or over the top?
Like anything, I think the latest financial reform legislation has some good and bad aspects to it. Specifically as it relates to advisors, we don't know exactly where this is headed because the SEC is in the middle of a comment period and conducting a six-month study. What comes out of this study will be critical. I think where this whole thing went wrong is with the Securities Act of 1934 that governed stockbrokers, and the Investment Advisors Act of 1940. The "40-Act" was designed to set up rules and regulations for fiduciary advisors. The job of stockbrokers was to sell and broker securities. When the stockbrokers started to provide advisor-like services without registering as investment advisors is where it went wrong. This could have all been resolved quickly and simply if you separated those two lines again. The greatest risk here is trying to harmonize rules that are meant for salespeople with rules that are meant for fiduciaries.
With so much uncertainty out there, if I'm a young person just starting out, why would I want to get into the advisor business?
The first thing I would say to a young person is that investors always come back to the market. The allure of the gains that can be had are simply too great. I saw that after the crash of 1987 and multiple other mini-crashes since then. When you're in those down periods it always seems to be so difficult and so dark. But the bottom line is that if you take a long-term view, this will be just another blip on the radar screen.
Yet another report was released recently that detailed the lack of retirement preparedness on the part of baby boomers, and how there's a disconnect because they don't see it as a big issue. Do you think the RIA channel is failing in its education mission?
I wouldn't say so. Remember, most RIAs are dealing with higher-net-worth individuals. If you're looking at individuals in the lower end of affluence or even middle-income folks, that's a different conversation and a different space. If you look at financial planning in general, bringing that education to the masses can best be done through a do-it-yourself model.
What will be the keys to success in the RIA channel over the next five to 10 years?
The key to success for RIAs is to run efficient and effective back offices. That will involve looking at all their systems, their practices, and especially being open to technology.
When you say "streamline their back office" are you really talking about outsourcing to you?
No, it's not "outsource to us." It's do whatever works for you; that could mean outsourcing to someone else or adopting some technology that we have here like our portfolio rebalancing system. I'm not in the rebalancing business. I'm in this business because I want to work with advisors, to show them there are better ways to do things, and if they don't adopt these technologies they will have a very difficult time expanding their businesses. In other words, we want them to double the size of their revenue without doubling their expenses.
What about the marketing side? Are referrals still a marketing plan?
They are part of a marketing plan and a very good one. But make sure you are getting the most out of referrals in terms of volume and quality. Make sure to explore other things that might be effective for you in terms of marketing and sales.
Do you have some kind of a formal coaching program that gives advisors a comprehensive diagnostic check?
We have quite an extensive program. It hinges around this program that's called the Roadmap system, in which we will have a team consult with an advisory firm. Sometimes it's over the phone, sometimes it's face-to-face, probably a little bit of both. Then we work with them to set up a roadmap on how to get there.
Is this a "golden age" for independent advisors, especially considering the problems in other channels, most notably the banks and wirehouses?
This has been a pivotal point for independent investment advisors. I think folks realize the fiduciary model is a better model. I hear more and more folks talk about their investment advisors, whereas they used to talk about their stockbrokers.
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