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The Independents' Voice

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Research: In your opinion, what are the strengths of the independent advisory model?

Brown: A couple of things come to mind. As the label says, it’s the independence that the advisor is able to enjoy — controlling his or her own destiny. Most advisors who choose this business model want to be their own boss. They want to own their own business; they want to free themselves from the constraints that they may have experienced in an environment where there was pressure to sell proprietary products or meet certain corporate-established and corporate-imposed measures and goals. In this business model, from a client service and advice standpoint, they’re really able to put themselves on the same side of the table as their clients.

The second thing that comes to mind is that in terms of competition, the independent advisor can be very adaptable to changes in the environment, whether these are changes in the current client base, changes in the marketplace, or changes in the regulatory climate. Because independent advisors are small business owners, the dynamic there gives them adaptability.

How can advisors best play to those strengths?

I think they already are. The independent advisory channel is the fastest growing in the financial services industry. I’m not hearing any stories of independent advisors leaving their BD and going back to wirehouse firms. The stories are always the opposite.

One challenge that we see is that advisors are not always running their own businesses as smartly as they can. They should seize the strengths that the business model provides them and be disciplined in running their businesses as such. Everybody talks about how the proverbial cobbler’s kids have no shoes and the barber’s children have bad haircuts, and since advisors are in a helping profession and seeking to do well for their clients, too often they do that at the expense of their own business and well-being.


I think an argument can be made they are serving their clients better by taking the time to run an effective and profitable business so that they can remain in business. Advisors can perform their jobs better if they’ve got the professional and personal satisfaction and freedom and peace of mind that comes of running a profitable business.

How does the Financial Services Institute play into that?

Independent broker-dealers have been around for some time and have been extremely instrumental in the explosive growth that the independent advisor channel has experienced. They’ve provided business partnerships and platforms to allow advisors to do what they do best: serve clients and control their own destiny by owning their own businesses. A little over three years ago, we formed FSI ( to respond to a void in the marketplace. There was no real effective and compelling voice speaking to policymakers in Washington with the unique perspective that the independent BDs and their advisors offer. And since then, we’ve been blessed with success in building an effective advocacy program — a lobbying effort, if you will — that achieves real results.

What are your core issues now?

The SEC is looking at how privacy rules apply to independent advisors and independent BDs. We’re very concerned that if the SEC’s current view prevails, advisors and ultimately their clients will be harmed. Often an independent advisor finds the need to change BD affiliations. Most independent BDs, when bringing new advisors on board, have some kind of process in place to help make that transition as smooth as possible. That often includes getting client contact information from the new advisor so they can fill out client forms and some letters the advisor can send existing clients to announce they’re changing BDs. It’s a very common practice, designed to make the transition easy for advisors and advisors’ clients. These BDs understand that the relationship with the client belongs to the advisor; virtually all clients will want to stay with the advisor.

The SEC seems to be saying that an advisor who is leaving one BD for another is potentially violating privacy rules when giving the new BD their client information, and that the new BD is aiding and abetting the violation of privacy rules. I don’t want to sound cavalier about protecting private client data, but if the SEC’s current view prevails, it could have a huge unintended consequence for clients, who would have to jump through substantial hoops to stay with the advisor of their choice.

Anything else?

The SEC has, in at least two different public forums, indicated it’s going to be reviewing 12b-1(c)s. FSI is going to be very proactively engaged in this issue because many independent advisors use 12b-1(c)s to be able to provide ongoing service to their clients, so FSI is going to be a part of any effort to review Rule 12b-1.

How can independent advisors get their concerns heard?

FSI is designed to help independent advisors get their voice heard effectively. These are busy businesspeople who want and need to spend most of their working hours serving their clients; we understand they don’t have lot of extra time to devote to staying informed with the regulatory environment, what are the new rules being imposed on them, nor tons of extra time to write comment letters or call their Congress people. One thing I would say is the independent advisor community is at a point in its evolution and development as a whole where these independent businesspeople ought to be organized in investing in and protecting the future of their business.

Does the independent channel need protection?

Conservatively, close to 20 percent of all NASD-licensed registered reps are independent, and according to conservative estimates, our members serve 15 million American households. The channel is an important and growing provider of advice and financial products and service to American families. I would never question that it’s not part of other business models, but whenever everyone works to do right by the client, everybody is going to win.

Robert Scott Martin is a New York-based contributing editor of Research.