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Industry Spotlight > Broker Dealers

Culture Wars

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At Investment Advisor, we cover both registered investment advisors and independent broker/dealers. While once upon a time these were parallel universes, these days there are more similarities, to my mind, than there are differences. But, these two universes’ priorities are not quite the same. Broker/dealers still take the measure of a rep by reciting their production figures and speak of a rep’s “book.” RIAs have their own yardsticks and freighted jargon, of course. I recall an interview I conducted of a high-ranking executive at a major custodian of RIAs who spoke blithely of those RIAs’ “books.” Them are fighting words to many, but the true battle to come will be a war of attrition that takes place in Washington, mostly, where those who truly put their clients first will need to lobby and cajole and form alliances of mutual interest to offset the inside-the-Beltway clout of certain full-service firms. If there’s one thing we’ve learned from the credit crisis, it’s that the U.S. government will not allow large financial services organizations to fail. Do you think our elected representatives would take steps to bail out the independent B/D with which you affiliate, or your own RIA, whether you have $100 million in AUM or $5 billion?

However, I remain optimistic about the future. I’ve been asking some smart people lately if a modest proposition of mine rings true. Having had discussions with folks like Mark Tibergien and Philip Palaveev, Maya Ivanova and Lori Klash Winkler of Rydex, Mike Slemmer and Bev Flaxington of The Collaborative, and just yesterday as I write this–the winners of the 2008 Broker/Dealers of the Year awards–about the future of the industry, I’m thinking that the following might happen. Spurred by increased competition and advancing age, you who provide objective, personalized advice to individuals who are becoming better businesspeople. You have to improve your business skills if you aspire to provide a range of services to your clients that actually yields a profit to you. Moreover, building business structures and instituting standard processes makes your practice much more valuable to a potential buyer or merger partner. Oh, yes, it’s also much better for your clients.

Here’s the proposition. Because you have learned, or are in the process of learning, how to efficiently provide excellent service to your clients, and to make a good living doing so by matching your compensation model to your time and expertise, in the near future it won’t be just the high-net-worth that can afford your services, but first the mass affluent and then, maybe, maybe, the middle class and even people who are struggling on the lower rungs of the economic ladder–those folks who could use your help the most. Ms. Flaxington tells me she’s already working with some RIAs who are using technology and other business efficiencies to do just that. Moreover, in my rosy scenario, the independent broker/dealers will even lead the way, particularly if the SEC institutes what Eric Schwartz of Cambridge Investment Research (who will be FSI chairman next year) suggests is on the table–turning the 12b1-fee into more of a “servicing” fee that’s clearly disclosed to the client but allows reps to continue to service smaller accounts and get paid for doing so.

Feel free to write me with your thoughts–pro or con–on this proposition. I think it’s important for all of us.


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