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 (financialservices.org) 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?