It would be hard to overemphasize the impact that technology has had on the success of independent financial planning. Those old HP-12Cs empowered the first generation of planners to calculate the future values and internal rates of return of the tax shelters and limited partnerships that were the industry’s mainstay. Then Lotus spreadsheets revolutionized the entire financial industry, enabling planners to easily create retirement projections that showed clients the often sobering consequences of their spending habits, along with the happier “What-ifs?” of planners’ recommendations.
Lotus created the reason for financial professionals to put computers on their desktops–and once that happened, things really took off. Financial planning software produced those tomes advisors used to gain credibility with clients, even if no one actually really read them. Morningstar Principia allowed advisors to easily find mutual funds that fit into their allocated portfolios. QuickBooks put advisors and their clients’ finances literally on the same page. GoldMine put client data at advisors fingertips. Monte Carlo software taught us all that “average life expectancy” isn’t a valid basis for retirement projections.
In the second half of the 1990s, the Internet changed everything yet again, directly connecting independents with their custodians or broker/dealers, creating back-office trading efficiencies that essentially ended the dominance of the wirehouses. We’re still in the early stages of exploiting its benefits, but so far the Internet has provided solutions to the challenges of investment information, consolidated client reporting, client communications, unified technology, and access to experts in every facet of financial planning, business management, laws and regulations, and darn near everything else.
Until recently, the one area where independent RIAs continued to lag was compliance. With the regulatory environment heating up, many brokers and registered reps were reluctant to take on the rising cost and legal liability of assuming responsibility for their own regulatory compliance as RIAs. In fact, for the first time in my 25 years covering financial advice, some advisors actually gave up independence to rejoin the safer regulatory harbor of a B/D environment.
Now Batting, MarketCounsel
Technology is stepping up to solve the compliance issue, too, at least as far as it’s able. In-house or online systems now exist to save client communications, store client documents, schedule and notify advisors of upcoming client activities, and even connect investment policy statements with portfolio management software to ensure compliance with stated parameters. Consequently, as with most other areas of independent advice, compliance costs are coming down, and will undoubtedly continue to do so.
Yet more than other areas where technology has advanced the concept of independent advice, regulatory compliance requires more than access to information and digital economies of scale. Most advisors are trained in the art of securities evaluation, allocating portfolios, and creating retirement plans. But unless they have a legal background and some regulatory experience, most advisors aren’t qualified to direct their own compliance efforts, even with the assistance of all that modern technology has to offer. From setting up an RIA, to creating compliance systems, to monitoring firm activity, to handling complex issues as they inevitably come up, independent advisors still need the advice of competent, experienced counsel–at a price they can afford. That’s still a challenge for many advisors.
The Real Deal
I first saw Brian Hamburger speak a few years ago at a Fidelity Registered Investment Advisor Group workshop in Scottsdale. He wasn’t 10 minutes into his presentation when it became clear that he was the real deal: one of those rare folks who is an expert in his own field, truly understands the business of independent advice, and clearly sees how the former supports the latter. (My short list of other folks who fit this description includes Don Phillips, Mark Tibergien, John Bowen, Jamie Green, Angie Herbers, David Drucker, and Andy Gluck.)
Hamburger is a compliance attorney for RIAs and founder of the Hamburger Law Firm and MarketCounsel, a consulting firm that offers business-savvy compliance and technology solutions to small to mid-sized advisory firms. Unlike most compliance attorneys, Hamburger understands the business of independent advice the way the Olsen Twins understand bling. His father was an insurance agent in Florida who became a CFP and eventually an RIA. At the pratice’s peak, he had 40 people working in his firm, and even before Brian could drive, he was one of them. That makes him a member of the second generation in this fledgling profession–like Mark Friedman, Steven Rog?(C), and Steve Kanaly–who literally have independent financial advice in their blood.
Perhaps not coincidentally, he’s also a member of that rare breed who seemed to know what he wanted to do in life from an early age. A dual major in economics and financial management, and editor-in-chief of the law journal of the University of Miami School of Law, Hamburger was a law clerk in the enforcement division of the SEC before he became chief compliance officer of his father’s firm. Then, upon his father’s retirement, he joined the securities practice group of a large New Jersey law firm, concentrating in investment advisor and broker/dealer registration and compliance.
During his time at the law firm, Hamburger became frustrated with two recurring problems that none of his peers seemed interested in solving. First, financial advisors invariably ended up paying their attorneys way more than they needed to. “Advisors would wait until they got into trouble to come to us,” he remembers. “The cost of getting them out of trouble was much higher than if they would have let us help them avoid trouble in the first place. Plus, I got real tired of cleaning up compliance messes that would have been easy to prevent on the front end.” What’s more, he came to realize (as do most of us who have to work with attorneys in our business dealings) that “it’s hard to get lawyers to focus on solutions, instead of just telling their clients what they can’t do.”
So in 2000, Hamburger left his lucrative job at the big firm to open his own securities law practice, which paid the bills and funded his vision of helping advisors more cost-effectively on the front end: MarketCounsel. MarketCounsel is the independent advisors’ alternative to a B/D’s compliance department. At present, its 10 attorneys (trained for a minimum of eight months in-house: “We don’t hire former regulators,” says Hamburger, claiming “they’re just too deferential to the regulations.”) offer some 240 advisor clients proactive compliance and technology management. Those clients are located across the country (New York, Chicago, LA, Phoenix, etc.), ranging in size from $50 million to $500 million in AUM. The level of services are tailored to each client’s size and specific needs: From an RIA incubator that positions brokers to go independent, to a designated attorney who does all filings, onsite visits, regular reviews, trains the chief compliance officer and an assistant, sets up compliance systems, and provides ongoing consulting on regulatory changes for established advisory firms.
In accordance with Hamburger’s background and original vision, MarketCounsel focuses on providing solutions. He created MailBanc Messaging Compliance, an e-mail surveillance, archiving, retrieval, and reporting platform that includes multi-layered spam and virus filtering technologies and backup services to manage the risks associated with electronic communications. A custom consulting offering tailors specific compliance and business management advice to a client’s unique needs and challenges. MarketCounsel even has flex hours in its New Jersey offices to provide access to compliance attorneys during the working hours of clients on both Coasts, and all points in between. Says Hamburger: “We’re constantly asking; ‘How can we take more work off our clients’ desks?’”
MarketCounsel is a quintessential outsourcing resource for independent advisors who are cost conscious but recognize the need for expert consulting help in key areas. Like leaders in other areas–back office, technology, accounting, and even investment management–MarketCounsel offers a level of experience and knowledge backed up by a professional staff and technology that most advisory firms could never afford on their own. Combined with his own unique experience and training, Brian Hamburger has created services that are a dead-on solution to one of the major issues that advisory firms face today. It’s a perfect use of today’s technology to leverage professional expertise, enabling independent advisors to not only out-compete Wall Street on client service, but on the bottom line as well.
Bob Clark, former editor of this magazine, surveys the advisory landscape from his home in Santa Fe, New Mexico. He can be reached at firstname.lastname@example.org.