Big Brokers and Planning

Now that fee-based brokerage accounts are forbidden, some major brokerage firms are finding that the shift to investment advisory accounts, financial planning, and the Certified Financial Planner (CFP) credential may actually be good for business. The Financial Planning Association (FPA) is embracing major firms, reaching out with ways to help captive broker/dealer, bank, and wirehouse executives and their reps–employees of those firms–to shift part of their firms to an advisory model.

It’s a complex change, with plenty of controversy and potential for conflicts: How do you ensure that CFPs are planning and not merely using the credential on their business card to draw in clients? “It’s up to the firms to regulate their employees,” says Michael Shaw, managing director for public policy, and legal, for the CFP Board, in Washington, DC. The Board’s revised ethical standards are effective July 1, requiring a fiduciary duty in which a CFP must put client’s interests first. What about a registered-rep employee’s obligation of loyalty to the firm–how does that coexist with the fiduciary duty requirement? Can two hats be worn or will professionals have to choose one or another?

Some major firms are testing the waters with relatively small planning divisions. “It really only started last summer,” although the FPA has had a Major Firms Symposium at the end of its national conferences for the past three years, according to Ian MacKenzie, managing director of knowledge and business development for FPA, in Denver. “We’re trying to be the catalyst more than anything else. We have no desire to tell companies how to do their business, for the most part. We don’t claim to know how financial planning should work in a large firm environment because we know it’s different,” he says, citing FPA’s core group of “ensemble and solo practitioner firms doing very high touch financial planning, and we don’t look at that and say…you should be able to do that at a major wirehouse for a million people–maybe you should, but we don’t claim to know how to do that, and we know that they’re going to have to figure it out. We do think that bringing them together, talking to each other, is helpful–it’s amazing how similar the problems are.”

The Future

“The future is advice. How do we transition to advice, how do we make a living giving advice, and how do we do that in the major firm environment–which is different from being a practitioner?” MacKenzie asks. The ways major companies structure their financial planning areas are diverse, with some breaking even, some using financial planning as a loss leader, and some very profitable, according to MacKenzie. It depends on what the companies expected right off the bat: “Were you satisfied for it to be a loss leader, knowing that research shows that a financial planning relationship is very profitable over time?” With other companies, the view was “we’re not going to have a separate division or department that does something different unless you can show us a bottom line result now, or at least, break even.”