Top Advisor Blasts RIAs, Brokers in New Book

The term used to signal unconflicted advice and open architecture, but “now even the RIA industry has figured out how to make money [improperly] through soft dollars or having your own product,” Lockshin says. He says brokers, and now RIAs, have taken over the language, using concepts like open architecture deceptively.

“Only folks who don’t have a conflict of interest should be able to call himself an advisor,” he says. “That knocks out about 80 to 90% of [those calling themselves by that name].”

Lockshin says the confusion around titles and compensation is so profound that even educated, accomplished people fall for it, citing a cousin who recently told Lockshin he’s getting advice from a really nice UBS advisor who “doesn’t charge” him for anything.

He also cites anecdotally an entertainment industry prospect who after extensive searching for affordable investment options ended up with a broker whose recommendations were “loaded with funds of funds; placement fees for funds of funds; B and C shares—the guy was getting hosed six ways to Sunday,” Lockshin says.

And RIAs, despite their high moral self-image, often make false fiduciary claims, he says, noting that he takes readers (in his book’s Chapter 5) step by step through a typical advisor’s Form ADV, which he describes as “a case study in how to screw the client.” Clients never read the form, he says.

While Lockshin’s ethics campaign decries the injustices he sees in the financial services industry, ThinkAdvisor asked if it were just to discourage the use of the advisors who serve precisely the clients his own firm shuts out as a result of its $10 million minimum account size. (The average Convergent client’s AUM hovers closer to $27 million.)

Lockshin responds that one builds a model at the top of the economic spectrum and then diffuses the results down.

He said Convergent started a brand called Independence, initially intended as an online solution for accounts with just $500,000, though the firm’s majority owner, City National Bank, raised that to $1 million. He said that he was personally invested in Betterment, where accounts start at $5,000.

But he says that many of the key aspects of financial services that consumers need today — asset allocation and manager selection — have become commoditized and can be obtained at little or no cost online. The most valuable thing consumers need, he says, is advice from a trustworthy advisor.

Because Lockshin believes few investors really have the discipline and fortitude necessary to invest on their own, he devotes part of his book to helping people find “a capable fiduciary advisor.” But that’s not what the financial services industry produces, he says.

“Advisors need to raise standards in the industry,” he says. “There’s absolutely no barrier to [getting licensed]. Any idiot can take an exam for two hours. It’s not like medical school or law school. They ask the dumbest questions.”

He cites a multiple-choice question asking whether it’s okay to a) steal; b) commingle personal funds with client funds; or c) ask a branch manager what to do.

“And that’s supposed to weed out good people from bad people?” he says. “The standards are ridiculous.”

“After [the] 2008 [financial crisis], the SEC was supposed to solve the issue of standards,” he adds. “The fact is it hasn’t been solved. SIFMA has a ton of money and has used that money to lobby and stalled the issue. So consumers are left holding the bag.”

He was referring to the Securities Industry and Financial Markets Association, Wall Street’s trade group.

If you need brain surgery, he asks rhetorically, do you go to the top practitioner in the field with allegiance only to the patient, or to some guy sponsored by some product company?

“Every morning you need to be able to look in the mirror and know you’ve done the right thing,” Lockshin says, “and only you can know the answer.”