More On Legal & Compliancefrom The Advisor's Professional Library
Advisors are professionals who must concern themselves with the minutiae of the markets and the often conflicting messages emanating from not just the U.S. economy, but China’s, Brazil’s, and Ireland’s in an increasingly shrinking investing world. To build financial plans and then to implement an investing strategy that meets clients’ needs is a full-time job in itself. But most readers of AdvisorOne and of Investment Advisor and Research magazines are also small businesspeople who are either independent or independent-minded. You may not have learned about practice management while studying for your CFP or CFA or getting your training in a wirehouse or insurance company, but you are living practice management on a day-to-day basis.
That’s why we strive to present comprehensive coverage of the trends around practice management—of best practices and benchmarking tools you can use—and of the regulatory and legislative developments that affect your businesses now and in the future.
In this article, we’ll present the top practice management “stories” of 2010 as evidenced by the traffic on AdvisorOne.com and our own editorial instincts and experience. There are many more than five “top” stories, of course. Ones that come to mind include the rise of mobile technology by and for advisors, the increased role of outsourcing companies to meet advisors’ portfolio-building and other business needs and independent BDs’ dodging a legislative and executive branch threat to the independent-contractor business model. Still, these five stories stand out.
Top Story No. 1: Dodd-Frank
In 2009 as the financial crisis was winding down, Mohammed El-Erian told attendees at Morningstar’s annual investment conference that they should “get used to having the government as your partner.” That partnership has been brought to the fore as never before with this year’s top practice management story: the Dodd-Frank financial services reform law. Developed in response to the financial crisis of 2008-2009 and scandal-mongerers like Bernie Madoff, the law is typical Washington in that it will have nearly as many unintended consequences as intended ones. For advisors, Dodd-Frank is like the best of presents—already having an impact in 2010, it will keep on giving in 2011 and the years to come, but especially next month when a number of SEC studies are due to be released—including one highly anticipated study on imposing a fiduciary standard on all advice givers.
A related big story from 2010 has to do with the SEC itself. Congressional failure to give it adequate funding, including making the Commission self funding, may well ease the way for FINRA to become the SRO for RIAs. The independent broker/dealer community in the form of the FSI has already endorsed FINRA for the job, which FSI’s Dale Brown argued will make for a level regulatory playing field.
Top Story No. 2: Breakaway Brokers, More Choice for Advisors
The rise of firms like High Tower Advisors, the resurgence of serial advisory firm acquirers like Joe Duran’s United Capial, the entry of RBC Wealth into the RIA custody business, Pershing upping the technology ante with NetX360 and moves from Schwab, TD Ameritrade and other investing platform providers to cut costs for advisors’ clients, especially through lower-cost ETFs, are all signs that the independent advisor is highly valued...
by the financial services world.
It’s no longer the case, as Craig Gordon of RBC said in an interview this past fall, that among the wirehouses, it is “acceptable now to be a boutique.”
Top Story No. 3: Advisor Strength in Numbers
A third major practice management story is, in our opinion, the coming together of major advisor associations to lobby with one voice, for once, on many measures relating to Dodd Frank. The members of the Financial Planning Coalition—comprising the FPA, the CFP Board, and NAPFA—joined forces with other groups like the Consumer Federation of America and the Investment Advisers Association and made their voices heard on Capitol Hill and in the court of public opinion. If their shared efforts on Dodd Frank and the fiduciary issue is a harbinger of future cooperation, that bodes well for the advisor community, which has too often splintered into myopic self-interested groups that did not have advisors’—and clients’—best interests at heart, but rather its individual members.
Top Story No. 4: LPL Financial Goes Public
When the independent broker/dealer largest goes public, it’s a big story. When it starts trading, as it did Nov. 18, at a very healthy price that then stands up to the market’s whims, that’s news as well. LPL Financial’s executives and biggest producers benefited financially from its November IPO, and the entire industry has benefited through the public market’s endorsement of the independent advice model. It has also prompted some healthy soul-searching to help determine what it takes for an independent BD to survive and thrive.
Top Story No. 5: Progress in Succession Planning
According to data compiled by Schwab Institutional, 2010 will likely see a record number of RIA firm acquisitions since the industry, in the words of Schwab's Dave DeVoe blogging in AdvisorOne, "is potentially halfway through a ten-year cycle of increasing M&A." Nearly all independent BDs have instituted succession planning programs for their independent contractor reps, doing so to not only hold onto valued clients but their assets as well. The ties being formed between academia and practitioners to help nurture the next generation of advisors, the willingness among some custodians and BDs to provide capital for advisory firm acquisitions, and an increased awareness of best practices in HR to attract and motivate younger employers are all healthy signs that the industry is beginning to address the talent shortage that Mark Tibergien keeps reminding everyone constitutes the biggest threat to independent advisors’ future.