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‘Reformed Broker’ Speaks Out; Firms Hunt New Advisors: March Research—Slideshow

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The cover story of the March issue of Research magazine, “Breaking Ranks,” focuses on Joshua Brown, iconoclastic advisor and author of the contentious blog The Reformed Broker. Journalist Gerald Burstyn has a freewheeling discussion with Brown, whose new book Backstage Wall Street is likely to spark fresh controversy. Financial institutions, according to the outspoken Brown, must embrace substantial changes, including a uniform fiduciary standard, in order to earn clients’ trust.

Also featured in the issue is an article delving into what has become a pressing question for the industry: “Where Are the New Advisors?” Contributing Editor Jane Wollman Rusoff looks at how financial firms are scrambling to address a shortage of newcomers to the financial advisory field, including by looking for career-changers who already have made a mark in other industries.

Among other offerings in the new issue, Bill Good’s Sales Seminar column offers advice on “Bullet Proofing” an advisory practice against litigation-minded clients, and Contributing Editor Ellen Uzelac reports on the distinctive opportunities and challenges in “Advising the Entrepreneur.”

Click through the following slides to preview the March issue of Research magazine.

Breaking Ranks

“Joshua Brown is one angry former broker.” So begins Gerald Burstyn’s cover story about the 35-year-old financial advisor, whose Reformed Broker blog has gained wide notice.

Brown’s new book Backstage Wall Street is, Burstyn writes, “part plea, part mea culpa, part screed.” Brown criticizes various sales tactics and business practices of the investment industry, seeing conflicts of interest as rife. He also points to what he considers a better set of practices, and makes wide-ranging predictions of change in the financial sector.

“I think in 10 years the wirehouse disappears,” Brown says. “I think eventually the SEC will adopt a fiduciary standard for brokers. It will be impossible for them to justify the commission model. I also think the mutual fund industry goes away. The independent advisories — some of them will get really big and they will look like the wirehouses of today, but that’s going to be fee-based, people selling advice as opposed to commission-based people selling products.”

Where Are the New Advisors?

Firms are looking for talented newcomers to the financial business from a wide range of sources, including the pharmaceutical industry, the shipping industry, the garment industry and more.

“Career-changers with proven track records are financial services firms’ most sought-after FA candidates,” writes Contributing Editor Jane Wollman Rusoff. “And they are sorely needed.”

According to a study by Cerulli Associates, the number of FAs industry-wide dropped from 334,919 in 2004 to 320,378 in 2010. At wirehouses, the total fell from 60,960 to 50,742. Exacerbating the problem of short supply, the average FA’s age last year was 49.6; at wirehouses, 50.6.

Rusoff spotlights the techniques that wirehouses and other firms are employing to find the talent they need. This includes steped-up use of social media, and looking for people in post-graduate programs in a variety of fields who may be dissatisfied with their current career outlooks.

Advising the Entrepreneur

Entrepreneurs can be a tricky bunch to have as clients. For one thing, they tend to have a distinctive view of risk, one that may be more suitable for their business ventures than for their portfolios. For another, being do-it-yourself types, they may only seek financial counsel after a problem has already become pressing.

Ellen Uzelac taps the experience of advisors focused on entrepreneurial clients, as well as entrepreneurs themselves, to seek out the practices that work best in dealing with this market segment. One tip: give preference to on-site meetings that are short and to the point. Busy business owners have little patience for “death by a thousand PowerPoints,” notes former financial advisor Herb Sih, who heads an early business incubator in Kansas City, Mo.

Another tip: create a lasting engagement. “Many entrepreneurs are looking for someone who can be a sounding board — who can ask the right questions, almost like a personal board member,” says Ray Padrón, president of Brightworth, an advisory firm in Atlanta. “You become their trusted counselor.”


Bullet Proofing

Sales Seminar columnist Bill Good offers suggestions on protecting an advisory practice against litigation by disgruntled clients.

The first line of defense, Good notes, is ethical behavior, so as to avoid giving clients any legitimate reasons to sue. “But sadly, today, that’s not enough,” he writes. “You can do the right thing and still lose everything.”

The second line of defense is being able to prove you did the right thing. Thus, Good spells out the requirements of careful document management, to ensure that communications are recorded carefully and available for ready retrieval.

He also discusses how a lack of communication — such as a client not responding to repeated attempts at contact — must be documented, in case the advisor later receives a letter from the client’s lawyer stating that “failure to communicate changed risk factors in that investment has caused our client a substantial loss.” Writes Good: “Without documentation that you made every reasonable effort to advise your client of the issue, you are heading down a two-year path to substantial legal bills or, worse, an abrupt change in career path.”

Magnetic Personality

Profiled in the March issue is Peter Cocolaras, a consulting group senior vice president in Morgan Stanley Smith Barney’s midtown Park Avenue office in New York City. He manages about $65 million in assets and focuses his practice on a compact 100 households, enabling him to keep business personal.

 “I very much bond with my clients. When you’ve forged a special type of relationship, 80% of the conversation has nothing to do with stocks and bonds,” says Cocolaras. “It has everything to do with what’s happening in each other’s lives.”

Gregarious Cocolaras concentrates on two niches: small business owners and retirees at least 65 years of age. He speaks with clients frequently to be sure he’s on top of every significant event in their lives. “There are trigger moments — a marriage, arrival of a child, retirement. It’s imperative for advisors to recognize these and plan [for clients] accordingly,” he says. He also developed some notable expertise at time management during five years in which he owned a Greek restaurant while working as a financial advisor.

 To access the March issue, click here.