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The Limits of Independence

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All it took was a 30-minute van ride to the

airport from the faux (but quite nice) Hawaiian hotel at Universal Studios in Orlando to remind me why the independent advisory business is such a wonderful one to be in and yet such a frustrating one, too. On that trip were three advisors who began discussing the software they use in their practices, the limitations of each, and the new applications they had seen demonstrated at the first annual conference of the newly merged TD Ameritrade Institutional. Each of the three had a different business model, each had come into the independent advisor business from a different place, and each used different portfolio management software. Each also used more than one custodian for client assets, and each had horror stories about custodians they’d used in the past who had attempted to poach clients. All were struggling to figure out the best tools to use in a highly competitive climate with a growing compliance burden.

All three were also quite excited–in a restrained advisor-like way–with the TD Waterhouse-Ameritrade combination, since they were convinced already that Tom Bradley and his TD Ameritrade staff would be enjoying additional resources that would translate into better products and services for advisors who choose to custody with TDA. That improvement was already evidenced, they said, by the new client statements that Waterhouse displayed and would be implementing soon, especially the cost basis that would now be appearing on those statements, similar to the statements, said one TD Ameritrade tech staffer pointedly, enjoyed by customers of a certain company named Merrill Lynch.

Around the time of the Waterhouse conference in early February, which featured a revved-up Bradley, an aw-shucks performance by Rudy Giuliani, and a self-deprecating speech by a still hale and insightful President George H.W. Bush, the other major custodians had their own announcements to make. Schwab announced its 2005 financial results in late January, which showed the company reaping the benefits of a big cost-cutting campaign that allowed it to post record net income of $725 million on a 6% revenue increase to $4.4 billion. Schwab Institutional President Debbie McWhinney said total client assets associated with SI rose 17% over the prior year to $406 billion, net new asset flow was the “highest since 2000,” and the number of end client accounts opened on behalf of SI advisors grew 6%, or by 100,000.

In February, Fidelity Institutional’s FRIAG unit rolled out an elegant separate account platform that impressed IA staff editor Kate McBride. Then there are the smaller custodians that command fealty from many advisors: Fiserv ISS Advisor Services grew assets by 21% in 2005, Pershing custodies assets from some 300 independent advisors, and there are Rydex, Trust Company of America, Shareholder Services Group, and so on.

There’s one problem with having such choice and cherishing independence while skeptically eyeing every partner: it can dilute the influence that independent advisors have when it comes to setting the agenda for the industry. That dilution is not in evidence among independent broker/dealers. Just two years after its spinoff from the Financial Planning Association, the Financial Services Institute speaks with one voice on many issues. In fact, John Poff, chairman of FSI and president of Mutual Service Corp. , pointed out at the group’s second annual gathering in late January that the organization has identified ten Congressmen who it believes will have a long-term impact on the industry, and it plans to court those influencers in the years ahead through a better-funded PAC and the help of a D.C. lobbying firm it’s retained–Bartlett & Bendall. The FSI has figured out that it’s better to do something about the regulatory and compliance weather, not just talk about it.


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