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Industry Spotlight > Broker Dealers

What Matters Most in Wealth Management

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Over the past six years I have learned many things from the registered investment advisors (RIAs) and broker-dealers (BDs) we serve as journalists, the thought leaders and money managers we speak with on behalf of wealth managers and their clients and about how the process of managing wealth is evolving.

This is the last blog I will write as Wealth editor-in-chief at AdvisorOne, as I am moving on to a very exciting opportunity which will be announced shortly. With this blog I’d like to say a few things about what I have observed from this perch and in my activities as a founder of The Committee for the Fiduciary Standard.

Relationships matter. While advisors and brokers all know that it is far more effective and in many ways easier to build robust relationships with current clients and retain them than to seek new ones, both routes are important. Client retention starts with a relationship of honesty where they understand whether it is a sales relationship or a fiduciary relationship; clients or customers need to know which it is and always will be.

The hybrid BD-RIA model, two hats, does not work for investors. No amount of investor education or disclosure will actually empower an investor to tell which hat an advisor-broker is wearing no matter how much it is disclosed. Behavioral economists report that this does not work for investors. Investors will always want to think they have chosen the best intermediary and will trust them—even when that intermediary is required to act in their firm’s best interest instead of the client’s. Therefore, the higher standard of conduct, the fiduciary standard required under the Investment Advisers Act of 1940, must prevail in the two-hat arena.

Words matter. What is said in clever advertising to imply a trusted advisor (fiduciary) relationship when that is not, in fact, the offering to the investor is shameful or worse and regulators should take notice of this and do something about it, pronto. Congress should provide regulators with the proper funding to accomplish this.

Client expenses, fees and costs matter. In the ongoing discussion about whether to require all who provide advice to do so as fiduciaries, the lobby for those who do not want to put clients’ interests first, who obfuscate expenses built into products, who claim that fiduciary duty will price investors out of the market, will cost more and would limit choice, I challenge you! Reveal the total costs built into products that are sold to customers and let them have a true comparison of advice that is in client’s best interests—where clients pay the advisor and the advisor is not compensated by any other entity—to one in which the investor cannot truly discern the true relationship and total cost, including layers of hidden product fees, commissions—all costs that are borne by the investor. Only then will investors have a real comparison.

Sales and advice should be separated. As Tom Bradley, president of TD Ameritrade Institutional put it so succinctly in this video,  Fiduciary Duty, Separation of Sales and Advice, and RIA Oversight, allow for sales and advice to exist separately. Do away with the broker-dealer rule. Fund proper RIA oversight.

Investor confidence is important. Until investors’ confidence in Wall Street is restored (it sits at 20% right now, the lowest since the worst of the financial crisis in Sept. 2008, according to the Chicago Booth/Kellogg School Financial Trust Index), brokers and advisors will all have a difficult time.

It is hard to see how investor confidence will be restored until investors can be sure whether they are dealing with a salesperson or an advisor who is a fiduciary. There are important roles for both sales and advice, but those roles need to be clear, titles need to reflect them, obfuscation or blending these roles hurts the financial services industry as a whole.

There are a lot of great women and men working in different areas of the financial services and investment industries, and the majority of them want to serve their clients well. For those who want to be in sales, clearly outline this role and separate it from advice. For those who want to advise, BDs and insurance firms need to truly step up and support this by providing the backbone and support these advisor need, a way to be paid as an advisor to the client that doesn’t involve hidden fees and a true process under which they can thrive as fiduciaries.

This is important for investors, advisors and brokers.

Thank you.


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