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Top Advisor Blasts RIAs, Brokers in New Book

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The author of a new book on the advisory industry fires off this warning: If you’re reading this and you get pissed, you’re probably guilty of being a bad advisor.

Books that knock financial advisors and the financial services industry are almost a genre unto themselves, like Helaine Olen’s recent Pound Foolish, and they are often written by personal finance columnists.

Now, released Wednesday (though Amazon gives the release date as Monday), comes a new entry in this burgeoning field of literature, Get Wise to Your Advisor, which has the unique distinction of being written by a well known, veteran advisor.

Steve Lockshin“No longer do you have to fund the lifestyle of a broker or advisor to have him tell you how to diversify or where to find the next investment that cannot be missed,” says the blurb for the book, written by Steve Lockshin (left). “This book will provide the tools for calculators that tell you most of what you need to know.”

Lockshin, whose firm has regularly ranked at or near the top of best-advisor lists from Barron’s to Forbes and even this publication’s 100 Top Wealth Managers for 2011 list, seems to have an affinity for rhyming trisyllabic company names.

Founder and chairman of Convergent, an ultrahigh-net-worth family office serving 280 clients in Potomac, Md.; New York; Los Angeles; and Portland, Ore., Lockshin earlier founded Fortigent (now owned by LPL) and recently started but then closed Advizent.

That last enterprise has particular relevance for his new book. Lockshin invested his own financial resources in attempting to create a  network of advisors free of conflicts of interest.

The network’s main purpose “was to try and create some clarity for some consumers and identify high-quality, capable fiduciaries, create a set of simple and measurable standards and hold those folks to those standards,” said Lockshin in an interview with ThinkAdvisor.

The advisor, who divides his time between Potomac, Md., and L.A., where he has a large entertainment industry clientele, said he wanted to spend between $30 million and $50 million a year on advertising as a means of raising consumer awareness of fiduciary advice.

To get that level of capital, he asked the major custodians and asset managers to agree to take a basis point off of the substantial assets brought in by Advizent’s 150 advisors with close to $200 billion in AUM.

The custodians he was speaking with — all the industry’s big players — and asset managers were dragging their feet, and Lockshin decided it would be better to shut down Advizent rather than risk not delivering on promises to the advisors’ clients.

Ultimately, these big companies, Lockshin says, “like things how they are; consumers’ lack of knowledge benefits those in the financial services industry.”

Lockshin suspended Advizent’s operations five months ago, but his efforts to raise the bar for consumers continues with his new book. He emphasizes that the target audience for the books is consumers, not advisors, and many of the latter may have a hard time accepting its message.

“If you’re reading this and it makes the hair on the back of your neck stand up and you get pissed, you’re probably guilty,” Lockshin warns.

“This book isn’t for [all advisors], only the honest ones,” he continues, adding that he hopes “high-quality RIAs” will distribute copies to clients and prospects.

Lockshin defines those high-quality advisors as those comfortable answering every one of the questions he suggests consumers ask of prospective advisors in his book’s chapter on choosing an advisor (Chapter 8).

Included among those questions are: “Do some investments you recommend pay you more than others?” Another is: “If I work with you, will I have a limited number of investment choices? If so, who decides which investments are in the universe of choices?”

The questions are significant, he says, since seemingly more trustworthy labels such as “RIA” have been denuded of meaning.

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.”


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