From the May 2017 issue of Investment Advisor • Subscribe!

Frontrunners: The 2017 IA 25

With help from our readers, we bring you the 15th annual IA 25 list of top regulators, advocates and educators, tech leaders and advisor partners

In 15 years of compiling the most influential people in the advisor industry, the editors of Investment Advisor have learned a thing or two: Whatever is happening in the markets or in Washington, there will always be thought leaders and advocates working on advisors’ behalf.

Since last year's IA 25, a lot has changed. After finally being passed last year, the DOL fiduciary rule has been delayed, leaving advisors in a state of uncertainty once again. Key leadership roles in Washington have yet to be filled or are being filled by a different political party.

With that in mind, we look at some unfamiliar faces to see how they will impact your businesses. We also profile some longtime industry leaders, in roles new and old, for their perspectives on our ever-in-flux industry and what lies ahead in terms of technology, broker-dealer dynamics, financial planning and more.

Also this year, we wanted to see who you, the readers and the individuals most affected by those on this list, view as the most significant industry influencers. We asked you to vote on them in an online poll earlier this year. These results form the basis of the first-ever IA 25 Readers’ Choice. Click here to see who readers consider the most influential people in the industry.

Donald Trump, White House

Not long after being sworn in as the 45th president of the United States, Donald Trump began taking action on three major reforms — health care, taxes and regulations. So far, the first one hasn't fared so well, and while he's pressing ahead on all three policy initiatives, the jury's still out on how much can be accomplished this year.

Trump's deregulatory tear started in earnest a month into his administration, when he proclaimed that his goal was to cut regulations by as much as 75% and called on federal agency heads to toe that line.

First came an executive order in late February requiring all federal agencies to appoint a regulatory reform officer to chair a regulatory reform task force in order to “alleviate unnecessary regulatory burdens.”

That order came just weeks after Trump told federal agencies via an executive order, “Reducing Regulation and Controlling Regulatory Costs,” to propose deleting two regulations for each new one they issue.

Tump has also promised to do “a big number” on the Dodd-Frank Wall Street Reform and Consumer Protection Act.

At press time, Trump said a “major streamlining” of the Dodd-Frank Act was forthcoming, likely referring to House Financial Services Committee Chairman Rep. Jeb Hensarling's Financial Choice Act.

Justin Schardin, director of the financial regulatory reform initiative at the Bipartisan Policy Center in Washington, noted that while Congress has already overturned several regulations through the Congressional Review Act, the financial regulatory agencies have “a lot of authority — without congressional action — to reinterpret Dodd-Frank or otherwise pare back regulations.”

If Trump wants to pursue that route of deregulation via agency heads, “he’ll need to fill some of the 14 vacant positions at those agencies. So far, he's only made one nomination,” Schardin said, which is Jay Clayton to head the Securities and Exchange Commission.

Trump has yet to announce nominations for the four open positions at the Fed (three governors plus vice chair for supervision); an FDIC chief; two open commissioner spots at the SEC; four open commissioner spots at the Commodity Futures Trading Commission (the chair is also a commissioner); a chief for the Office of the Comptroller of the Currency; and a chair for the National Credit Union Administration.—Melanie Waddell

R. Alexander Acosta, DOL

In last year's IA 25, we said that former Labor Secretary Thomas Perez would be credited with forever changing the retirement advice landscape due to his perseverance in getting the fiduciary rule across the finish line. Oddly, the same can be said this year of new Labor Secretary nominee R. Alexander Acosta.

At press time in early April, Acosta had been confirmed by the Senate Health, Education, Labor & Pensions Committee, and was awaiting full Senate confirmation. Once confirmed, Acosta will be in charge of unwinding — or killing — Labor's fiduciary rule, a rule six years in the making.

[Editor's Note: The Senate voted 60-38 on April 27 to confirm Acosta as Labor secretary.]

At his confirmation hearing in mid-March, Acosta — law dean at the public Florida International University in Miami — said that he would follow President Donald Trump's Feb. 3 executive order directing Labor to review its fiduciary rule.

Not long after, Labor issued a final rule delaying the fiduciary rule's compliance date — from April 10 to June 9.

While the effective date has been pushed back, the debate over the rule's content and the structure of the related exemptions “is far from over,” noted ERISA attorneys Fred Reish and Joshua Waldbeser in a recent alert to clients. The regulation included additional surprises related to the expanded definition of “fiduciary” investment advice, PTE 84-24 (which deals with annuities) and the BICE transition period.

“It appears likely that there will be more changes made to the rule and exemptions following the DOL's review process,” the Drinker Biddle attorneys said.

Further delays beyond June 9 “may still be possible given the presidential order directing the DOL to review” the rule and decide whether it should be revised or withdrawn, Reish and Waldbeser said.

However, the regulation delaying the effective date indicates that the DOL does not intend to issue further delays, “opting instead to provide broader prohibited transaction exemption relief through the end of the year.”—MW

Dan Arnold, LPL Financial

Dan Arnold became CEO of LPL Financial in January, taking the reins from Mark Casady, who led the independent broker-dealer for nearly 15 years. Arnold was tapped as the IBD's president two years ago. He joined LPL in 2007, as part of the firm's purchase of Uvest, a broker-dealer working with banks and credit unions, and went on to serve as LPL's CFO starting in 2012.

“Dan is an entrepreneurial leader who understands how to grow a business. He took a startup and grew it into a market leader at Uvest,” said Casady. “He is all about the team and not his own interests.”

Assuming the top post at the IBD is a challenge to say the least. LPL works with over 14,000 financial advisors, 700-plus financial institutions, 4,000 insurance advisors and some $528 billion in advisory and brokerage assets. LPL's affiliate advisors service roughly 46,000 retirement plans with about $127 billion in assets, and the firm has over 3,200 employees in Boston, San Diego, Charlotte, North Carolina, and other locations.

The LPL leader does not shy away from tough issues. At last year's advisor conference in August, Arnold laid out how the firm was addressing changes in regulation, technology and client expectations. Most important, he said, was making advisors’ service experience the firm's top priority. “The better [the service experience] is, the better your experience is, and the better you can serve your clients.”

In 2015, LPL staff took about two minutes to answer the phone; the firm had brought that down to an average of 17 seconds a year later, chiefly by adding staff and investing in technology, its executives say.

Upon taking over, Arnold said, “I am deeply humbled to accept the role of leading this extraordinary company into the future.” Plus, “As an entrepreneur at heart, I am constantly inspired and energized by the work our advisors and institutions do to serve investors,” he explained.—Janet Levaux

Ron Carson, Carson Group

Ron Carson is the founder and CEO of the Carson Group, which includes RIA Carson Wealth Management, advisor coach Peak Advisor Alliance and turnkey partner Carson Institutional Alliance. Overall, these firms have amassed nearly $8 billion in assets under advisement.

With close to 50 offices nationwide, partners of Carson Institutional Alliance have been growing their businesses 40% more than the industry average per year (among those who have been with Carson for three years or more), the group says.

“Ron is a true leader who has thought deeply and crisply about the ever-changing financial services landscape and how advisors and firms can evaluate and evolve their businesses,” explained David Canter, head of the RIA segment for Fidelity Clearing & Custody Solutions, in an interview.

In 2012, Carson helped start the Alliance for RIAs (aRIA), a think tank of six RIA firms. Two years later, he joined The American College of Financial Services board.

The wealth manager and innovator made headlines recently when he left LPL Financial to work with a number of other firms: Fidelity, TD Ameritrade, Cetera Advisor Networks, eMoney Advisor and Orion Advisor Services.

“Instead of seeing factors like technology, regulation, rising client expectations, fee compression and consolidation as obstacles, we view them as opportunities,” Carson said in a statement. These are “opportunities that wouldn't be possible without the bench strength of the partners we have today.”

The entrepreneur grew up on a farm in Tekamah, Nebraska. While studying at the University of Nebraska-Lincoln, he started a financial services business in his dorm room and has never looked back.

“Ron is a master at getting advisors to focus on where they can add the most value and bring it to investments and solutions throughout their practices,” Canter explained. “He is among the elites when it comes to coaching in this profession.”—JL

Jay Clayton, SEC

Incoming Securities and Exchange Commission Chairman Jay Clayton will be stepping into his post just as the Trump administration plans to rein in funding for federal agencies.

While funding cuts will plague the agency during his tenure, Sullivan & Cromwell partner Clayton — who was confirmed by the Senate Banking Committee in early April and was awaiting Senate confirmation at press time in mid-April — has been chided by lawmakers and others for representing Wall Street firms that he now must regulate.

Senate Banking Committee Chairman Mike Crapo, R-Idaho, downplayed Clayton's ties to Wall Street as nothing new for an SEC chief, saying he was confident Clayton will be “vigilant to ensure that he acts appropriately and ethically.”

But the top Democrat on the committee, Sherrod Brown, noted that while Clayton has experience as a corporate lawyer, “his deep ties to Wall Street will leave him hopelessly conflicted in the SEC's most high-profile” enforcement actions.

Clayton stressed during his testimony that there's “zero room for bad actors in our capital markets,” and that he's “100% committed to rooting out bad actors.”

Clayton suggested that the agency look at ways to use technology to find “better and more efficient ways to monitor those individual advisors and brokers” who’ve been repeat bad actors.

Division heads and a chief of staff will be top posts Clayton must fill.

“Putting his own people in place in senior positions at the commission will be one of Clayton's first and most important jobs,” said David Tittsworth, counsel with Ropes & Gray, and former head of the Investment Adviser Association in Washington. “Who he hires will have a major bearing on setting and implementing the SEC's rulemaking, enforcement and inspection programs.”

Clayton earned his B.S. in English from UPenn, his B.A. from Cambridge and his J.D. from the University of Pennsylvania Law School.—MW

Robert Cook, FINRA

Robert Cook wants a 360-degree review of the Financial Industry Regulatory Authority.

The FINRA360 initiative will allow for a comprehensive probe of the self-regulator's operations and programs.

“Being an effective self-regulatory organization that protects investors while promoting vibrant capital markets requires that FINRA engage member firms and the public in meaningful dialogue,” Cook said recently. “FINRA invests significant resources in its current engagement programs, and we are exploring how these programs can be made more effective without compromising our regulatory responsibilities. Requesting comment is an important part of that evaluation.”

As part of the review, FINRA began seeking feedback in late March on how to enhance the self-regulator's programs for engagement with its members and other stakeholders. Other requests for comments came in early April on rules that address the capital-raising activities of BDs, underwriting terms and arrangements regarding the public offering of securities, and a plan to create a limited safe harbor for eligible desk commentary that may rise to the level of a research report.

Cook appointed Nathaniel Stankard as his senior advisor in late March to spearhead special projects, including FINRA's strategic review of its operations.

Brad Bennett, former chief of FINRA's enforcement division, says Cook is a “brilliant lawyer who believes strongly in retail investor protection,” but he faces a “variety of challenges stemming from the migration of [BD] accounts to fee-based” ones, as well as the “increased oversight” of FINRA by the SEC.

The SEC launched last October a dedicated inspection team to oversee FINRA. The new group, FINRA and Securities Industry Oversight (FISIO), is headed by Kevin Goodman, head of the agency's broker-dealer exam program.—MW

Ric Edelman, Edelman Financial Services

Ric Edelman is possibly the only financial advisor known by people who don't work with one. He has a syndicated radio call-in show, a TV series on public television and nine books to his name, many best sellers, plus another that he co-wrote under the AARP imprimatur.

Most important for financial advisors, he's grown the financial advisory firm he founded with his wife, Jean, 30 years ago into a financial powerhouse. The firm manages about $18 billion in assets distributed among almost 77,000 accounts belonging to over 30,000 clients. Along the way, Barron's named Edelman the No. 1 financial advisor three times since 2009.

Last May, Edelman gave up his role as CEO to become executive chairman and focus on financial education and advice. Ryan Parker, a former LPL Financial executive, became the new CEO.

Edelman started his career as a financial journalist and investor frustrated by his search for a financial advisor, which might also explain his common sense approach to financial advice and what he calls his “unconventional wisdom.”

For example, in mid-April Edelman proposed a program to support the viability of the Social Security Trust Fund called the Tomorrow's Retirement for the U.S. Today Fund for America (T.R.U.S.T. Fund for America). Under the program, the federal government would set aside $7,000 for each child born in the U.S. and repeat that for annually for 35 years.

The money would be put into an investment portfolio determined by a blue-ribbon panel appointed by the president and Congress. After 35 years, the government would receive its initial outlay, which would then fund a program for children born during the second 35-year cycle.

Edelman says the program would cost less than $1 trillion, compared to the over $12 trillion program proposed by the Bipartisan Policy Center's Commission on Retirement Study.—Bernice Napach

Joe Duran, United Capital

Joe Duran, CEO and founder of United Capital Financial Partners, is the advisor's anti-robo thought leader. He launched the firm about 12 years ago after asking himself, “How about building a company that starts with your life and ends with your investments rather than the other way around?”

The firm includes an RIA and a consulting affiliate. It has close to $18 billion in assets under management and 80 offices; it recently rolled out FinLife Partners, a white-label advice, training, planning and investment management platform.

“I think of myself as the champion of the human advisor,” Duran said in an interview. “I worry deeply that most of the industry is like the walking dead and doesn't know it yet.”

By this he means that advisors’ “mission-critical” role is to be human and focus on financial and life planning while letting machines do the number crunching. “Humans need other humans to make good choices […] and to provide the understanding and discipline that machines aren't capable of providing,” he explained.

Duran grew up in war-torn Zimbabwe, studied at Saint Louis University and became president of Centurion Capital, an investment advisory firm later sold to General Electric. Over the years, he has written several popular books about money and business, such as “The Money Code: Improve Your Entire Financial Life Right Now.”

“I am a big fan. I’ve read his books and heard him speak. He's really on to something,” said Tim Welsh, head of the consultancy Nexus Strategy. “Joe is trying to move the industry away from the commoditization of investment advice, and he's doing that with financial planning.”

The role of human advisors “will be eviscerated” by technology, so advisors must become “bionic,” Duran said. “Understand the clients and help them better understand both themselves and their entire financial life,” he explained.—JL

Jon Stein, Betterment

If imitation is the sincerest form of flattery, the increasingly crowded field of robo-advisors should make Jon Stein and company pretty confident.

“We’ve always known that if we were successful, we would have lots of competition,” Betterment's CEO and co-founder said. “We’re transforming the old way of investing into a new way that's more customer-aligned.”

Historically, the industry has been dominated by large mutual fund firms and brokers, Stein said, with sales goals and business models that didn't always align with customers’ needs. “That's who served the mass market in America.”

Betterment's advantage “over the large incumbents is that we’re not encumbered by the legacy practices and legacy technology and legacy business model that they have.”

The firm has accumulated over $8 billion since it launched in 2010. It currently serves nearly 210,000 clients with its ETF-based portfolios, and rolled out a platform for advisors in 2014.

Betterment's mission, Stein said, is to “maximize your money.” To do that, the robo-advisor launched a new service offering in January that connects users with a human advisor. The firm employs 220 advisors, many of whom are CFPs and are talking with customers personally, Stein said.

“We’ve always had relationships with our customers. There are so many ways you can get advice from us,” he said, whether that's purely digital, an annual meeting with an advisor or a dedicated local advisor to meet with in person.

Although Betterment started as a digital offering, Stein said, “I’ve never thought of it as a competition [between] human advisors and technology. It's always been the best of both.”—Danielle Andrus

Larry Fink, BlackRock

The world is growing more connected — and more demanding, according to Larry Fink, CEO and chairman of BlackRock. Technological innovation and globalization are driving opportunities for change, he wrote in his annual shareholders letter in April.

Change is an “essential component of human history,” he wrote, and to be successful, we must prepare for change with education, innovation and infrastructure.

For its part, BlackRock is doubling down on technology. The firm fired over 30 active equity managers in March, Bloomberg reported, shifting its focus to quant funds.

Active management at BlackRock has struggled for years. BlackRock's total AUM reached $5.1 trillion last year. Index funds and iShares accounted for 63% of that, or $3.2 trillion, compared with 29% of assets that were actively managed.

Fink founded BlackRock in 1988 with seven other partners. Before that he was managing director and on the management committee at The First Boston Corporation.

He earned an MBA from the University of California, Los Angeles, with a concentration in real estate, as well as a bachelor's in political science.

BlackRock is now the world's largest money manager, with $202 billion in total net inflows last year, the strongest in the firm's history, Fink said in a statement.

BlackRock's Aladdin operating system pushed revenue up 13% last year. As of September, 25,000 investment managers were using the system, supported by over 1,000 developers pushing enhancements out to users. BlackRock has over 800 professionals managing data analysis and quality control on the platform.

“BlackRock has always focused on repositioning its investment platform and technology capabilities in anticipation of change, and BlackRock employees embrace their responsibility to help clients navigate this evolving, complex landscape,” Fink said. —DA

Amy Florian, Corgenius

Amy Florian's road to becoming an expert on grief and transition started with her own loss. Following her husband's early death and her own processing of grief, she started giving workshops to try to help others.

The response to those workshops was “phenomenal,” she said. “I realized I could give people what I didn't have. […] I could take my hard-earned wisdom and make it easier for other people.”

Florian now has a master's in pastoral studies, as well as a fellow in thanatology (the study of death and dying) certification from the Association for Death Education and Counseling. She founded her firm, Corgenius, in 2008 to train people in multiple industries how to deal with loss when serving clients and customers.

One of Florian's most important lessons for advisors is to resist the urge to respond with “I’m so sorry” when a client calls to say her husband has died or she was diagnosed with cancer. It may feel unnatural, but Florian knows from experience that even well-meaning “I’m sorry's” ring hollow to people weighed down by grief.

“Although talking about illness and death and grief seems on the surface to be a terribly uncomfortable topic, underneath it all, people are hungry to share their stories, to be understood,” she said.

Instead, invite clients to tell their stories. “Don't tell, ask. And don't focus on you — ‘I’m sorry,’ ‘I’m shocked’ — focus on them,” Florian said. Ask clients if they want to tell you what happened, who they have with them or what you can take off their plate, she suggested. The advisor who can call the insurance company for the client or coordinate with the funeral home will be much more valuable than one who offers sympathies and attends the services.

Florian stressed that these lessons will help people deal with tragedies beyond the death of a loved one, like divorce or retirement. “Grief is triggered by any break in attachment,” she said.—DA

Jeb Hensarling, House Financial Services Committee

Rep. Jeb Hensarling, R-Texas, has said that his Financial Choice Act, which was set to be reintroduced by the end of April, will throw the Dodd-Frank Act “on the ash heap of history.”

It may not be that easy, as the bill could likely be torpedoed in the Senate.

At press time in mid-April, a memo outlining the revamped version of the bill, dubbed Financial Choice Act 2.0, still says that if the Labor Department promulgates a fiduciary rule, “it must be substantially similar” to one issued by the Securities and Exchange Commission.

As chairman of the House Financial Services Committee, Hensarling wields wide power as leader of the committee that oversees the banking industry, the Fed and the Securities and Exchange Commission.

He's been a vocal opponent of the Consumer Financial Protection Bureau as well as Labor's fiduciary rule.

Rep. Maxine Waters, D-Calif., the top Democrat on the committee, chided the latest version of what she dubbed the “Wrong Choice Act 2.0” for repealing the Volcker Rule, which she said “stops banks from gambling with taxpayer money.”

Another bad move, Waters claimed, is repealing the Financial Stability Oversight Council's tool to designate non-banks, like AIG, as systemically important financial institutions for purposes of enhanced supervision and regulation.

Waters also complained that the Act “completely guts and functionally terminates the highly successful Consumer Financial Protection Bureau, which has already returned nearly $12 billion to 29 million consumers ripped off by predatory financial institutions.”

But Hensarling has said that the CFPB, while having an “important mission,” is the “most powerful and least accountable Washington bureaucracy in history and a perfect example of the political left's dangerous belief that the ends always justify the means.”—MW

Andrew Ng, Stanford, Coursera

Andrew Ng is not a financial advisor. He doesn't work for a broker-dealer, custodian or technology provider.

His work will, however, have a profound effect on advisors as tech firms integrate artificial intelligence to streamline their processes. Ng is an adjunct professor at Stanford University and director of the Stanford Artificial Intelligence Lab. Until recently, he was chief scientist at Baidu, the Beijing-based internet search company, where he led the company's AI group.

“Just as electricity transformed many industries roughly 100 years ago, AI will also now change nearly every major industry — health care, transportation, entertainment, manufacturing — enriching the lives of countless people. I am more excited than ever about where AI can take us,” Ng wrote in a blog post announcing his resignation from Baidu in late March.

At Stanford, Ng teaches machine learning. He also developed Stanford's first free online learning platform. That effort led to the massive open online courses (MOOC) platform Coursera, which Ng founded with Daphne Koller. Ng is Coursera's co-chair with Koller and served as co-CEO of Coursera until 2014.

Ng also founded and led the Google Brain project in 2011 and 2012, which developed an algorithm that learned to identify pictures of cats from unlabeled data.

Ng envisions a future in which people can speak naturally with their computers and health care robots can determine what patients need.

“The industrial revolution freed humanity from much repetitive physical drudgery; I now want AI to free humanity from repetitive mental drudgery,” he wrote.—DA

Clara Shih, Hearsay Systems

Seen as the premier source of insights on all things digital in the advisor space, Clara Shih is CEO and a founder of Hearsay Systems, which lets advisors and their firms use social media, websites, email and text messaging in efficient and compliant ways.

On the Starbucks board of directors since 2011, Shih has worked for Google, Salesforce and Microsoft. In addition to creating the first business application on Facebook, the Stanford and Oxford graduate has written several books, the latest of which is “The Social Business Imperative: Adapting Your Business Model to the Always-Connected Customer.”

“We are standing at the crossroads,” said Shih at a recent social media event for financial services professionals. “We can complain that [technology] gives us more to do, but there are also opportunities ahead. The point is to stay relevant as firms look at the next generations [and take steps] to ensure that robo-advisors don't take over.”

How can advisors make themselves stand out in a crowded and increasingly automated field? They must be accessible online — aka “be Googleable,” she said.

Social media can help advisors both attract and retain clients. “Nearly 2 billion people are active on Facebook, and high-net-worth investors spend more time on social media than others,” she said. “The more wealth individuals have, the more time they spend on social media. There is a positive correlation.”

In addition, data can be an advisor's best friend, according to Hearsay, which processes some 100 million interactions involving 150,000 advisors and others, and sorts this information to predict the highest-risk items. Its latest rollout, for instance, is a compliance platform that uses machine learning (or AI) to prioritize the highest-risk offenses for supervision teams to track.—JL

Amy Webber, Cambridge Investment Research

Amy Webber started in the independent broker-dealer space when she was 18 years old.

“I had graduated from high school in a small town and the college that I attended had a work-study program. I ended up being placed in a very small broker-dealer in Wisconsin,” the now-CEO and president of Cambridge Investment Research said.

A month later, in October 1987, the stock market crashed.

“I realized, even as an 18-year-old who knew nothing about nothing, that this business was not math and accounting,” Webber said. “It was about people and relationships. That was really what inspired me to fall in love with the industry.”

She credits, in part, her early start in the industry as a reason for her passion to support the next generation of independent advisors.

“If I could bottle up the passion, the opportunities and everything that I’ve experienced and enjoyed personally over the last 25 or 30 years, we could have a lot more young people who want careers in this industry,” she said.

Webber joined Cambridge in 1998 and has been president of the Fairfield, Iowa-based firm for a decade. In January, the independent broker-dealer announced that Webber would take over as CEO from chairman Eric Schwartz, who founded Cambridge 35 years ago and led the IBD world's entry into fee-based compensation. Today, Cambridge has more than 3,000 independent registered representatives and nearly $80 billion in assets under management.

Schwartz and Webber had been planning his succession for some years, so Webber's move into the role was just another day.

“In reality, I have probably been doing the job for 10 years,” she said.

Webber's self-described personality is “to jump in and do what I love,” which she said often led to Schwartz empowering her along the way.—Emily Zulz

--- Read all of our 2017 IA 25 coverage here. 

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