The 2012 IA 25

This is the 10th year that Investment Advisor has published our subjective list of the 25 most influential people in and around the advisor universe, following a months-long process in which the editorial staff of the Investment Advisor Group, which includes Investment Advisor and Research magazines and AdvisorOne.com, nominated candidates and eventually came to a consensus.

In the pages that follow on this article, we list the IA 25 for 2012, with profiles of each honoree. See the IA 25 home page for enhanced profiles of this year’s honorees for the remainder of April and throughout May and additional reporting on the IA 25 through the 10 years of its existence.

Our profiles begin with Elliot Weissbluth of HighTower Advisors.

Some people ride a wave, and some people create a wave. Elliot Weissbluth of HighTower is a creator and has changed the conversation on and about Wall Street and the role of advisors. His backers at the Chicago-based firm founded five years ago believed in his vision, and the many top wirehouse brokers who have bought into the HighTower approach have validated that vision.

It’s a simple approach: Clients can benefit from the intellectual capital of the biggest firms on the Street while being served under a strict fiduciary mantle. Those ex-wirehouse brokers benefit from HighTower’s growing scale and ability to force everyone from bond trading desks to RIA custodians to compete for their business. They also benefit from being part of an elite peer group that has input on who else can join the partnership, while retaining the independence to run their own specific practices in their own way.

“The old dialogue,” says Weissbluth, “which was ‘independent good; Wall Street bad,’ was never an intellectually honest discussion. There’s tremendous value and innovation on Wall Street.”

“The optimal financial services firm leverages the competitive spirit of Wall Street, bringing the cream to the top, and does that inside an independent fiduciary service model, which is optimal to the individual investor.”

Weissbluth’s role as entrepreneur and growing status as a thought leader qualifies him to lead the 10th annual IA 25 list of the most influential people in and around the advisor industry. (See AdvisorOne.com for extended profiles.)

While the SEC considers whether to extend a fiduciary duty to all advice givers, and the Department of Labor forges ahead on its revised definition of fiduciary, HighTower has moved ahead on its own, wrapping a strict fiduciary standard into a business model that meets client needs while giving top Wall Street brokers an innovative home from which to serve those clients and grow their individual businesses.

Lest you think Weissbluth’s words about the Street are all saccharine, he can also be its harshest critic. Yes, he says that the most innovative and interesting thinking comes out of Wall Street, but it’s not the firms, it’s the ecosystem, he says. “The most competitive, interesting, innovative people are drawn to the Street, because that’s where the compensation is.” However, Weissbluth says “the problem is that if you land as a client at one of the Wall Street firms, you only get access to that particular firm’s good ideas. Those firms are not set up to benefit the clients’ interests first, but to benefit the firm.” He says, “we recognized that was a growing sentiment eight years ago; we formed HighTower five years ago, because we knew a business could be formed that started with the clients’ interests first without sacrificing” the benefits of Wall Street innovation.

Weissbluth argues that the industry must “educate and clarify what a fiduciary duty is and whether [clients are] receiving it; 90% of investors don’t understand what a fiduciary duty is, but they think they’re getting it from a broker.”

Investors are entitled to an advisor who owes them a fiduciary duty, Weissbluth says; an advisor who is duty-bound and legally obligated to put clients’ interests first. “Until that happens, there will be a lot of exploitation around the fiduciary issue.” Educating investors about such a duty and who has it provides a side benefit to the client. He argues, “It’s the greatest opportunity to restore confidence.”

And who is his competition? “Large firms with multiple layers of fees and conflicts of interest should be concerned that our model will become the new normal.” Those firms that “enrich a firm at the expense of the client; they should feel threatened.” —James J. Green

Elliot Weissbluth photographs taken by Tom McKenzie for Investment Advisor.

Amy Webber

Anyone worried about the “next generation” should talk to Amy Webber. The president and COO of Cambridge Investment Research convened the “New Century Council” in 2009 to help identify the next generation of advisors: their wants, needs, how they communicate and what they expect.

“It started with 12 advisors and has now grown to 23,” she explains. What she’s found is that the younger generation of advisors, while entrepreneurial in their own way, is far more receptive to outsourcing than their older counterparts.

“The older generation thought that being entrepreneurial meant they did it all; for them, it was what being independent really meant,” she says. “Not so with younger advisors.”

The importance of business continuity will become increasingly important, Webber says.

“Advisors realize they won’t live forever,” she concludes. “They can take care of their families through insurance and other means. This is really about how to best take care of their clients.” —John Sullivan

Charles Biderman

Charles Biderman, president and CEO of investment research firm TrimTabs, started his firm to provide real-time data on the supply and demand of stocks and money available for investment. “Since 80% of stock is owned by institutions, we track money flows in and out of institutions,” he says.

One of advisors’ biggest challenges over the next 12 to 18 months, he says, is one of odds. “In a world where mathematics say that individuals can’t beat the market, how do you invest appropriately for your client?” Biderman asks. “How do you create portfolios for the prospect of inflation and deflation occurring at the same time?”

To try to answer those questions, TrimTabs partnered with AdvisorShares to build an actively managed ETF, TrimTabs Float Shrink (TTFS). “Biderman Market Theory says that in the stock market, as in every market, the house always has the advantage over the players,” Biderman says.

“If the house has an advantage, I want to invest with the house. Our success over the years has been due to my ability to relate to what’s really going on with simple-to-understand supply and demand concepts.” —Danielle Andrus

Chip Roame

The managing partner of research and consulting firm Tiburon Strategic Advisors employs a rapid fire delivery of critical information that industry leaders want; so much so that in addition to purchasing his services, they clamor to attend his twice-annual CEO summits.

Although Tiburon intends to remain a mid-sized, boutique management consulting firm, Roame is looking to the future in how its information is delivered.

“We used to send our reports to clients, but no longer,” he explains. “We’re building out our research topics and now sending links to our reports. [...] The client will have live access to updates as they occur, some of which are updated daily and others that are updated maybe five or 10 times a year.”

Asked about near-term trends that most affect advisors, he doesn’t hesitate in naming the issue of breakaway brokers as tops. While the overall number might not be big, the assets they take with them are, and they have an outsized impact on the independent channel due to its smaller size.

“It’s the big dogs that get the attention,” he adds. “Other wirehouse reps sit and think ‘If Mr. Moneybags is doing it, why shouldn’t I?’” —JS

Dale Brown

Dale Brown, president and CEO of the Financial Services Institute, is a perennial member of the IA 25. He’s led the agency since its inception eight years ago. Over that time, FSI has carved out a place in the industry as a vocal advocate for financial advisors, and Brown has appeared on our list six times.

“In a relatively short period of time,” he says, “we’ve established ourselves as a strong and effective voice for independent financial services firms. We’ve had a real impact on important issues impacting members, their businesses, their clients.” 

Brown is optimistic about the industry’s future, calling it “stronger than ever in the face of tremendous regulatory burden. Not a single independent financial advisor contributed to the financial crisis, and yet it’s shown investors the value of independent financial advice,” he says.

The biggest challenge for advisors, Brown says, is the continued uncertainty surrounding regulatory changes. “We support a new uniform fiduciary standard for everyone that’s providing retail investment advice, and yet we have no idea exactly what that standard will look like.”

“That makes it very hard to run a business.” —DA

Mohamed El-Erian

Within the first minute of meeting Mohamed El-Erian, you understand why the company, and the man, is so successful. His charm immediately put our staff at ease, going so far as to joke with our German-born photographer about the pretzels in Munich and proffering a signed copy of his book. We imagine he employs this tactic in everything from meetings before the board to his personal rapport with Michelle Obama.

PIMCO’s staff efficiently briefed us on the idiosyncrasies of its CEO beforehand, helping to maximize the time he was able to give. We had the feeling this efficiency runs through the entire company, another reason for its success. Lest you think we were being “handled” (the thought did cross our mind), light security during our preparations let us come and go—and wander—as we pleased.

A cursory Google search immediately explains why El-Erian is so busy. In addition to his own book, he regularly writes for the Huffington Post and the Financial Times, provides commentary for other news outlets, does television appearances, speaking engagements, consultations with politicians and everything else that comes from increasingly sharing a role as the “face” of the company with founder Bill Gross. He is currently a board member of the National Bureau of Economic Research, the Carnegie Endowment for International Peace and Cambridge in America.

Oh, and did we mention he also runs the world’s largest bond shop?

In just the past two months, he’s made headlines for his comments about QE3 (he said it’s likely), his call for no more IMF aid to Europe, his take on the unemployment figures (they’re good and getting better) and his defense of Clint Eastwood over the Super Bowl ad controversy. He even managed to include his beloved New York Jets (no one’s perfect) in an analogy on the Greek debt crisis.

The New York-born El-Erian lived in Egypt as a child. He holds a master’s degree and doctorate in economics from Oxford University and received his undergraduate degree from Cambridge University. He first joined PIMCO in 1999 and was a senior member of PIMCO’s portfolio management and investment strategy group. He left for two years to serve as president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment and related accounts, at a time when the endowment was arguably at its highest point.

Before coming to PIMCO, El-Erian was a managing director at Salomon Smith Barney/Citigroup in London, and before that he spent 15 years at the International Monetary Fund in Washington.

Despite the fact that PIMCO’s signature fund, PIMCO Total Return (PTTRX), blew a call on Treasuries and ended up underperforming 69% of its peers in 2011, it’s rebounded nicely, outperforming 79% of its peers in the first quarter and attracting $1.7 billion in new assets.

And people (meaning us) still want to know what PIMCO and El-Erian think, especially when it comes to the three biggest issues facing advisors in the near term (12–18 months).

“Helping clients navigate, to use Chairman Bernanke’s phrase, ‘an unusually uncertain outlook’ for markets and the global economy; second, keeping up with changing correlations among asset classes and their implications for asset allocation and risk management. Lastly, adapting to the changing financial and institutional landscape as new regulations are implemented and companies adjust.” —John Sullivan

Mohamed El-Erian photographs taken by Jurgen Reisch for Investment Advisor. 

Eric Clarke

“Technology is the great equalizer,” Eric Clarke, president of Orion Advisor Services, says. “In our industry, technology has allowed advisors to go out on their own as independent investment advisors and still provide their clients the same level of service that the wirehouses have traditionally provided.”

Orion Advisor Services, founded in 1999, currently provides performance reporting on over $70 billion in assets and services over 275 firms.

While technology has certainly made advisors more efficient and more profitable, the most important benefit, according to Clarke, is that it’s helped them get closer to their clients. “It allows them to communicate with their clients in a much richer format,” he says. “In essence, [technology] has enabled advisors to spend time doing what they do best.”

The challenge, however, will be in learning how to put technology to best use. Advisors’ biggest challenge is “figuring out their firms’ mobile strategy,” Clarke says. “How advisors face this challenge today and how they respond to it in the next 12 to 18 months is absolutely critical.” —DA

John Bogle

There’s something reassuring about John Bogle’s passion and the fact that it hasn’t waned with age. We began our interview by noting what a sea change has occurred in financial services. Stung by criticism in the wake of the 2008 downturn, companies are beginning to adopt more of a “client first” position. Does he believe this to be true, or will it be “more of the same” from the investment industry?

“It will always be more of the same,” Vanguard’s founder answers. “Although I agree I’m seeing a little more movement in the direction of serving clients’ needs first.”

A bigger sea change is more personal to Bogle. The public and the media are finally beginning to “get” the advantages of low-cost indexing over higher-cost active management.

If we could trade for free then investing would become a zero sum game, he says, but we can’t so it isn’t. The more investors trade, the more investors pay, and then only the traders making the fees win.

“People are getting this, and indexed-type products that feature simplicity will win,” he says, before predicting, “This will mark the next couple of years at least.” —JS

John Peluso

John Peluso knows Wells Fargo, and he knows the various distribution channels, which makes him especially qualified to lead the firm’s independent channel—that’s right, a bank with an independent channel.

“The model came from a desire to attract and retain the best financial advisors in the country,” the president of Wells Fargo Advisors Financial Network says when asked about the network’s genesis. “When we started it 11 years ago, we evaluated industry trends, and it was obvious to us that the ‘best’ often didn’t want to work in a company-owned shop. They wanted to be able to choose how to affiliate.”

What differentiates the model and the network, Peluso says, is the unique intersection it occupies in the industry.

“Our advisors have all of the resources that Wells Fargo offers behind them,” he explains. “They’re able to marry that with the ability to own and operate their own business.”

Do the straight wirehouse reps the firm employs view the independent channel with suspicion?

“The franchise wins when we compete for the best available advisors,” Peluso answers, “but the advisors self-select the channel that is most appropriate for them.” —JS

Jon Henschen

Jon Henschen, president of Henschen & Associates, a broker-dealer recruiting firm, likens the torrent of regulatory changes the industry has seen recently to “having a cut on your finger, and they’re cutting your arm off to repair it.”

While the Dodd-Frank Act’s effect was largely felt by wirehouses and big banks, the independent channel hasn’t escaped increased bureaucracy that, Henschen says, is “grinding down the business.” For example, “the ‘know your customer’ rule allows broker-dealers to take a risk-based approach to implementing new suitability factors, but it’s doubtful that broker-dealers and regulators will see eye to eye on how the changes are to be implemented,” he says.

Henschen believes the fiduciary issue will affect wirehouses more than the independent channel, but altogether, it’s about surviving regulators. “One of the worst damages of increased regulations is they’re driving smaller firms out of business,” he says. “The emphasis more and more is on compliance supervision. Big firms can afford to do that. Smaller firms can’t afford it as much, especially firms under 100 reps. They hurt the little guy.” —DA

Mary Schapiro

On two of the top issues affecting the investment advisory space, Mary Schapiro, chairman of the Securities and Exchange Commission, is adamant: Brokers should be held to a fiduciary mandate, and a self-regulatory organization to help the agency examine advisors must be explored.

Since Dodd-Frank gave the SEC the authority to write a rule to put brokers under a fiduciary mandate, Schapiro has been waging a battle to ensure such a rule sees the light of day.

But Schapiro told Investment Advisor in an exclusive interview in mid-March that while she’s hopeful a proposed fiduciary rule will be unveiled this year, those in the industry shouldn’t count on it being one that is identical to the fiduciary rule being crafted by the Department of Labor.

“We have talked a lot with the DOL, and we’ve tried to coordinate and work with them, but they have to operate under the Employee Retirement Income Security Act (ERISA), which is quite a different statute than the federal securities laws,” Schapiro said. In crafting its fiduciary rule, the SEC is looking at “advice about securities to retail customers,” she continued, “and so the issues we would be concerned about are somewhat different than those that DOL is concerned about under ERISA.”

A uniform fiduciary rule crafted by the agency, however, will be business-model neutral, she said—a term that has had many in the advisory community scratching their heads. But Schapiro explained that in the SEC staff report recommending that brokers adhere to a fiduciary duty that was sent to Congress and was mandated under Section 913 of the Dodd-Frank Act, the SEC staff said “that if the Commission moves forward with the staff’s recommendation to create a uniform fiduciary standard for retail customers when recommendations are made about securities that it be ‘business neutral’ so that we’re not favoring a particular model—investment advisor, BD or a particular compensation structure—over another.” Still, those in the advisory community argue that exactly how this business-model neutral approach is crafted will be crucial to determining whether the agency actually ends up putting brokers under a fiduciary mandate.

Despite being deluged with Dodd-Frank rulemakings and other priorities such as “a very big enforcement pipeline,” oversight of the municipal securities markets and post flash-crash reforms, Schapiro said that she believes crafting a fiduciary duty rule for brokers is a “very important” priority for the agency.

“I don’t know where the Commission will be on this” fiduciary rule, Schapiro told Investment Advisor. “I know that my personal view is that investors should not have to figure out based on the title on the business card of the person sitting in front of them what standard of care they are entitled to. The regulatory system should not put them in that position when [the advisor and the BD rep are] engaged in the exact same conduct.”