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Big Brokers and Planning

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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.”

Planners at the major firms typically fall under the corporate investment advisor umbrella, acting as investment advisor reps instead of broker/dealer reps, says Timothy Welsh, president and founder of Nexus Strategy, LLC, in Larkspur. California. He leads the major firms task force for FPA, including “a broad set of executives from Ameriprise, Prudential, Morgan Stanley, and Harris Bank. “Advisors who do financial planning are more productive, have more assets under management, have fewer compliance problems, and are more successful in every metric you look at than those who don’t,” he adds. Welsh argues that there’s a much bigger pool of potential planners in the major firms community than at independent B/Ds: “of the 350,000 financial advisors out there, less than 10% are independent, purely, on the RIA side.”

Welsh and MacKenzie acknowledge it is a vastly different landscape for a planner that’s an employee at a major firm. “We’d be happy to sit down with any of these major institutions and talk to them about what their needs are,” notes Welsh. “This is a cultural issue for them; it’s a compliance issue, it’s operational; basically every aspect of financial planning is different when done in an institutional setting,” Welsh asserts. FPA plans to hold the first of a series of regional meetings for major firms in February in New York.

“FPA is an inclusive organization, not just an organization of small practitioners,” as MacKenzie puts it, “We need to represent those who deliver financial planning, those who support financial planning and those who need financial planning, and the large firms are part of the ‘support financial planning.’ We don’t think the world is going to get financial planning one small practitioner at a time–as important as they are. It’s going to need to ramp up, and scale up, if we’re going to affect the world.”

What happens if these firms embrace financial planning whole hog: does that mean they will eat smaller practitioners for lunch? “Not at all!” MacKenzie argues, chuckling. “The more financial planning is top of mind for consumers, the better it is for everybody” Anything that promotes true financial planning: real, put-the-customers’-interests-first, be comprehensive, think-about-your-future [planning]…has got to be good for everybody.”

E-mail Senior Editor Kathleen M. McBride at [email protected].


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