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The Palaveev Manifesto

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Following is an excerpt from an article by Philip Palaveev, president of Fusion Advisor Network, formerly of Moss Adams, and a regular contributor to Investment Advisor, that will appear in the September 2009 issue.

The natural state of a true investment advisory firm is a privately owned partnership that is fully controlled by the professionals who are actively involved in the delivery of advice to clients. Any other form of ownership–whether that’s a public company or a corporate ownership by a financial institution–creates potential conflicts of interest, exposes the company to undue risk, dilutes the expertise, diverts the focus of the organizational culture away from the client, and ultimately results in a cycle of crisis events that hurt the clients and the advisors every few years.

The last year clearly illustrated why corporate ownership of investment advisory firms is not optimal for either clients or advisors. By “corporate ownership” I mean any structure that substantially removes the practitioners from the equity, profits, and decision-making in the firm, whether that’s a publicly owned broker/dealer, a bank, an insurance company, or any other entity that is not owned and controlled by the advisors themselves.

I am not suggesting that firms have to be small in order to be able to balance ownership goals with client objectives. I am also not suggesting that all small partnerships are somehow better than public or corporately owned firms at servicing clients–some are and some are not. I do believe, however, that the corporate form of ownership of any skilled profession–CPAs, attorneys, doctors, etc.–has over time always proven problematic because of the inherent conflict between the abstract “owners” who are not involved in the delivery of the professional service, the “management” who represents the “owners,” and the professionals who are representing the interests of the client. Sounds like class struggle, doesn’t it? If that’s the case, let the revolution begin because if the advisory profession wants to list itself in the lofty list of professions it has to reject the corporate control. Ironically, it’s just not good for business!


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