ThinkAdvisor’s Nov. 21 interview with Ken Fisher in which the renowned money manager forecast the demise of the RIA world in 10 years ignited a fire under advisors.
Fisher predicted that, if the fiduciary features of Dodd-Frank are implemented, BDs would absorb and, in essence, exterminate RIAs. He cited the size and wealth of BDs, as well as the Financial Industry Regulatory Authority’s superior lobbying power on the fiduciary issue.
Though his forecast blared a loud Reveille, RIAs have no intention to get ready for Taps, advisors like Harold Evensky told ThinkAdvisor, echoed by several commenters on the article — though others, like Ron Carson, say the famed investor has a valid point.
“Fisher is wrong once again,” Joe Gordon said in a comment to the story, “as the RIA industry, with a small budget and little unity in politics and lobbying, can come together [as] David fighting Goliath. What is the true relevance of a BD? Signing leases and buying copiers? … The CFP Board of Standards, et al, needs to [toughen up] rather than tolerate fewer fee renewals if they stand up to Wall Street.”
What Your Peers Are Reading
In an interview with ThinkAdvisor, Harold Evensky, president-principal of the Coral Gables, Fla.-based fee-only firm Evensky & Katz, and a member of the Committee for the Fiduciary Standard, which advocates for an undiluted fiduciary standard for FAs, says: “It’s not going to be as disastrous as Ken suggests. I certainly don’t think the RIAs in general will go out of business.”
And in San Diego, Calif., David Reyes, RIA and founder of Reyes Financial Architecture, told ThinkAdvisor: “I disagree with Ken 150%. He’s obviously coming from the BD point of view. The BD community has no incentive to have the fiduciary standard. The Morgan Stanleys and Merrill Lynches of the world have fought it because with the suitability standard, conflicts of interest don’t have to be disclosed, and they can charge higher fees for their own products, which are highly profitable. Why would they want to be a fiduciary? It doesn’t make sense.”
Merrill Lynch, Morgan Stanley, Wells Fargo, Raymond James and Commonwealth Financial Network declined to comment for this story.
Some advisors think Fisher’s alarm is pitch-perfect.
“Ken has nailed down a very important issue for the industry,” says Clark Blackman, RIA, president and CEO of Alpha Wealth Strategies in Kingwood, Texas. “I agree that [RIAs' demise] certainly can happen and may happen — but it doesn’t have to happen.”
RIAs’ savior may be the hybrid model, one that Fisher assails for misrepresenting many BD advisors as fee-only advisors.
In the meantime, says Carol Rogers, president of Rogers & Co. in St. Louis, “the fear of RIAs being gone may push them more into being hybrids in conjunction with some of the BDs. This is becoming a huge, huge trend with independent advisors.” This year Rogers finalized a strategic alliance with V Wealth Management, a hybrid in Overland, Kansas. Both firms are affiliated with LPL Financial.
“I don’t want to be an independent RIA because of the complex compliance demand,” Rogers says. “I want that double security of having a broker-dealer behind me as well as an RIA.”
But Evensky worries that, with the hybrid model, “Where does the buck stop? The risk is what we’ve referred to for decades as ‘hat-switching.’ The investor goes into an RIA; and then they pass them off to the brokerage, who does the implementation. If that’s allowed, it becomes a sham. If someone meets with an advisor and a level of trust is established, you can’t change and say, ‘OK, you could trust me when I was a fiduciary, when we started; but now that we’re going to implement, all bets are off. You’re on your own. Caveat emptor.’”
Blackman strongly concurs. With a hybrid, “if the client ends up being sold a product, it has to be done as a fiduciary, not as a salesman on a suitability standard, he said. “But the fiduciary standard is an extremely difficult one to meet when you’re selling a product.”
Most of the advisors agree, however, that smaller RIAs will soon vanish.