When it comes to understanding how advisors are operating amid still-volatile markets and within an economy whose growth prospects are dim, there are multiple ways to get to the truth, such as to conduct rigorous research among large numbers of advisors (as Investment Advisor‘s partners at FA Insight continue to do).
There’s another way of assessing the state of the advisory industry: speaking directly to successful advisors with varying business models, location and clientele, diving deeply to see how they’re operating in the real world. This is the method we chose to follow in a telephone roundtable conducted in July with the principals of three Schwab-affiliated RIA firms–Cheryl Holland, president of Abacus Planning Group in Columbia, South Carolina; Dorie Rosenband, principal of Wealth Partners in New York; and Tim Courtney, CIO of Burns Wealth Management in Oklahoma City.
Specifically, we wanted to know if the highly challenging days of 2008 through March 2009, and the continued uncertainty of the markets and economy, had wrought any permanent change in how these advisors communicated with their clients, and in what they provided to clients, and in what those clients’ expectations were of their advisors. Here’s what we learned.
On What’s Different This Time
Jamie Green: How do you talk to clients now, how do you talk to prospects now, and are you seeing many clients who are considering moving from one advisor to another?
Cheryl Holland: One of the major changes that we have made over the past few years is that our portfolio reporting is almost wholly visual now, instead of clients getting pages of reports, they now get a one-page report–the front and back of one page.
Dorie Rosenband: I only started in business in March 2009, and Cheryl was actually one of the people that I spoke with in the process leading up to making the decision to leave a big wirehouse [SmithBarney, after 12 years]; she was very helpful to me. I decided that I could find a better way by setting up my own firm, so I selected a small group of clients who I felt would best align with the advisory-based model. This was in midst of a lot of the chaos in the financial markets but completely coincidental. One of the more attractive aspects of setting up our own business was that we could offer greater flexibility in how we worked with people. Like in Cheryl’s business, we offer comprehensive financial planning and we only work with people who are interested in taking a financial planning approach in how they organize their financial lives. We offer three different types of pricing depending on what will work best for them. That’s been the greatest change: the flexibility to not necessarily have to manage someone’s money in order to be able to work with them.
Tim Courtney: We started out with an independent broker-dealer many years ago, and back in the late ’90s started the process to become our own RIA, so we’ve been operating in that capacity for quite a while. We also provide full wealth management services to our clients, so we help to not only manage the assets but provide wealth planning in a number of different areas, like tax planning, or something that fits their personal circumstances, like stock option management.
JG: So you’re providing comprehensive wealth management, but do you start with a financial plan?
TC: Yes, we do, and that’s one of the things that we like, one of the reasons we broke away and became our own RIA, because we were limited as far as what we could do when we were with a broker-dealer. Being able to present a plan in the way that we feel is most beneficial for the client is really important for us. We do use some very broad planning software–for generic planning issues–but we also like to use much more specific modular planning tools that focus on the issues that are most pertinent for each client.
On Educating Clients, and Fiduciary
JG: All of you seem similar in providing a comprehensive approach for clients, and you’re no longer as inflexible as you were. That seems to be a clear competitive advantage, but is that something that your clients see as a clear advantage as well, or do you have to inform them about it? Is that what they expect from their advisors now, or do you have to educate clients?
TC: We do have to educate them. I’m sure you’ve probably seen a lot of the same studies where investors were asked what a fiduciary does, and how that differs from a suitability standard. The last time I saw the numbers, a third of the investors knew what the differences were between fiduciary and a broker. A third said there was no difference, and another third didn’t know how to answer the question. There are still a lot of investors who just don’t know what an RIA does, and how an RIA differs from a wirehouse broker, so we do certainly educate them.
JG: Dorie, you recently came from a wirehouse, bringing along certain clients whom you thought might be best suited to being your clients as an RIA. Were they folks who knew what a fiduciary was and knew how that model would be better for them, or did you also have to educate them?
DR: Nobody likes to feel that they are not being treated well, and there are people who don’t really care [about the difference between fiduciary and suitability] because they see an investment advisor as just that–they need access to something, that’s what they’re getting, and that’s just fine.
There are certainly clients that fit well into the brokerage model because they’re able to navigate what the brokerage firm can offer and they can get out of it what they want. Or there are people that are so passive that they just can’t really wrap their mind around the idea that it might not be the best thing for them. Where we found far greater connections for people was the alignment with their best interests and how compensation is rendered. In the traditional wirehouse model, advisors are compensated more for recommending stocks than they are for recommending bonds, and there’s no compensation on cash. When you explain that to people–that inherently there is an absolute motivation [for brokers] to recommend [certain investments], whether subconscious or conscious, they saw that the compensation isn’t aligned to their best interest.
The only way you can be compensated in a wirehouse model is if you’re managing assets. In Cheryl’s example, and it sounds like Tim may have some of these examples as well, they have clients who don’t have liquid assets to be managed, but absolutely need access to the advice and counsel an advisor can offer. There’s no compensation structure in a wirehouse to accommodate that.
I didn’t find a lot of [clients] connecting to the idea of me being a fiduciary because they said, ‘Well, weren’t you looking out for me before?’ They expect that, in my experience.