The IA 25 for 2014

This is the 12th year that we have published the IA 25, our annual list of the most influential people in and around the advisor industry. All the editors of the Investment Advisor Group—of Investment Advisor and Research magazines and ThinkAdvisor.com—weighed in over several months to choose individuals who in our judgment have been influential, are influential and likely in the future will influence the markets; how advisors invest and plan retirement for clients; and who will affect the regulatory and legislative environment in which advisors operate.

These are women and men whose decisions, intellectual capital, guidance and example—for good or ill—will affect how advisors run their businesses and invest their clients’ money.

As you might expect, some of the people on this year’s list are repeat honorees—Mark Tibergien has been on the list every year we’ve published it, while Dale Brown and Deena Katz have been honored eight times. However, there are 11 people (well, 12, counting Dave Drucker and Joel Bruckenstein, whose close partnership allows us to count them as one) who are on the list for the first time.

This is the fourth time that Bill Gross has been a member of the IA 25, and while money has been flowing out of PIMCO’s flagship Total Return Fund for some time, we know that advisors continue to be keenly interested not simply in the drama surrounding Mohamed El-Erian’s departure, but in Gross’ thoughts about the future behavior of the Fed and the direction of interest rates. How do we know that? The analytics that our editors access on an intraday basis confirm our readers’ keen interest in Gross. They also display the primary concern of advisors: regulation.

That has been the top worry of advisors and their partners for a number of years, as reflected in our annual Broker-Dealer Presidents’ Poll (look for those findings in the June issue), and in TD Ameritrade’s annual sentiment survey of its affiliated RIAs for five straight years, as honoree Skip Schweiss told me. That’s why we’ve included on this year’s list the SEC’s enforcement chief, Andrew Ceresney, Labor Secretary Thomas Perez, the Institute for the Fiduciary Standard’s Knut Rostad, consumer advocate Barbara Roper, securities attorney Tom Giachetti and the aforementioned Mr. Schweiss. Then there’s SEC Chairman Mary Jo White, who shared her insights into what the commission will be focused on in an exclusive interview with our Washington Bureau Chief Melanie Waddell. As in the markets, advisors and their partners hate uncertainty in the regulatory arena as well. Here’s hoping for more certainty.

Regulation is not the only issue that keeps advisors up at night, and where smart, passionate people in the industry have real influence on events and products and policies. Advisors are particularly interested in what their peers think and do, so several standout advisors are on the list this year.

In nearly every instance, an editorial staffer interviewed the honorees on our big list, which for convenience sake, we’ve split up into different categories. While we highlight certain honorees, we list them in alphabetical order by category. Brief vignettes of those interviews occur on the pages that follow, but throughout the month of May, we’ll be posting enhanced versions on ThinkAdvisor.com.

And now, we present for your consideration the 2014 IA 25. —James J. Green

Mary Jo White

After declaring that 2014 will be the year that the SEC decides whether to move ahead with a rule to put brokers under a fiduciary mandate, Mary Jo White directed SEC staff to compile a list of “all of the potential options” available to the agency that could be used in drafting a fiduciary rule.

Why? “If the decision were made to impose a uniform fiduciary duty, there are a number of ways to do that,” White told IA in an exclusive interview in mid-April.

White announced in a late March speech that “in order to more fully inform the commission’s decision on this matter,” she had directed SEC staff to compile a list of all those options, including, she said, “a uniform fiduciary standard for broker-dealers and investment advisors when dealing with retail customers, and other measures that may be more targeted and achievable in the shorter term.”

As it stands now, White told IA that she has gotten “some initial recommendations and analysis from the staff,” to which she has “raised some questions and given some reactions. I’m actively in discussions with the staff on those recommendations and analysis.”

The priority, she continued, “is to get those [staff] recommendations before the commission on what I consider to be a very high priority issue for investors.”

White decides what those recommendations should be, and then the five-member commission considers them.

In her mid-April talk with IA, White said that she’s “driving this [fiduciary] issue because of how important I think it certainly is.” However, she stressed, it’s a “complex” issue. “It’s hard.”

White declined to give a formal deadline on when the agency would decide whether to move forward on a fiduciary rulemaking, stating only that deciding whether to reform the advice regulations governing brokers and advisors “is a priority for 2014.”

When asked by IA if she believes that investors do not understand the difference between a broker and an advisor, White replied: “I think the data certainly shows that; that there is that investor confusion.”

Another “very important aspect” of deciding whether to use its authority under Section 913 of Dodd-Frank is for the commission to determine whether to harmonize the rules for brokers and advisors, which White said would be a separate rule to any fiduciary rulemaking.

Increasing the number of advisor exams is also a “No. 1” issue for White. “You really can’t overstate how pressing the need is to increase the exam coverage of investment advisors,” White said during the interview. “The metrics are pretty stark; we were able to examine 9% of advisors last year, that’s 25% of assets under management.”

Despite the SEC exam force being “a lot smarter” by using risk-based exam methods to single out which advisors to examine, White said “that’s just not sufficient coverage.” While declining to comment on whether a self-regulatory organization could help provide that coverage, White argued that the commission “should be funded” by Congress so that it can boost those exam numbers and said, “I’m pushing very hard for that.” —Melanie Waddell (Photo: Getty Images)

Click here to read the extended profile.

Andrew Ceresney

When asked what challenges come with being the sole director of the SEC’s most high-profile division, Andrew Ceresney cited keeping pace with the “increased complexity of the misconduct” the enforcement division sees as it relates to products, the markets and “schemes.”

“Over time, as matters have become more complex, we’ve been bringing on more industry experts and we’ve gotten smarter about using technology,” Ceresney told IA. The division is dealing with “very complicated schemes where people are engaging in conduct that’s hard to unravel, but we do it through hard work, smarts and the use of technology.”

Ceresney said the division is also “litigating more cases.” He added that the funding boost for the SEC under President Obama’s 2015 budget would help the division handle more complex cases. Financial reporting cases, for instance, “take a lot of time to investigate, and you often have significant amounts of data to review.”

The division’s five specialized units, which Ceresney said are “all functioning well,” include the Asset Management Unit, which focuses on advisor enforcement. “The vast majority of advisors mean to do the right thing and try to comply with the law,” he said.

Ceresney said the division has “hesitated” to create additional units because doing so “creates challenges in terms of managing the division because you’re creating a new set of supervisors.” Instead, the division has created task forces to focus on specific areas, like the financial reporting and auditing as well as the micro-cap and broker-dealer task forces. —Melanie Waddell

Click here to read the extended profile.

Thomas Perez

Secretary of Labor Thomas Perez is being credited with re-energizing the Department of Labor’s bid to ensure that a rule to amend the definition of fiduciary under the Employee Retirement Income Security Act gets reproposed soon.

After being sworn in last July, Perez “immediately started focusing” on DOL’s fiduciary rulemaking, said Knut Rostad, president of the Institute for the Fiduciary Standard. “He spoke to pro-fiduciary groups and started his rounds on the Hill to hear the concerns of lawmakers directly.”

Perez told a Senate Appropriations subcommittee in mid-April that the redrafting of the proposal that was withdrawn in 2010 “has been slowed down at my direction significantly because we wanted to take a step back [to] listen and learn from everyone.”

Said Perez: “The reason we’ve slowed the [redrafting] process down is that I want to hear from everybody; we’ve been engaged in a significant amount of outreach, and I’ve met with a number of senators and congressmen on both sides of the aisle and we’re going to continue to do that.”

In mid-March, Perez, a graduate of Harvard Law School who has served as the Assistant Attorney General for the Civil Rights Division of the United States Department of Justice, noted the “importance” of the DOL fiduciary plan, stating that a redraft would be arriving “in the coming months” and that DOL would continue its “due diligence” on the rulemaking.

Dennis Kelleher, president and CEO of Washington-based Better Markets, agreed that Perez going to Capitol Hill “was a smart thing to do,” as “a lot of the industry generated misinformation about what the DOL is doing.” —Melanie Waddell

Click here to read the extended profile.

Barbara Roper

One would think, said Barbara Roper, director of investor protection for the Consumer Federation of America, that “the near destruction of the global economy” would have ended the regulation/no regulation debate. However, when it comes to our country’s financial system, nothing has changed, and despite a series of successive disasters—the bursting of the tech-stock bubble, the accounting and analyst scandals, the mutual fund scandals and finally, the devastating financial crisis—it’s pretty much business as usual on Wall Street.

Many investors, though, are still wary about getting back into the market. Cultivating their trust is of the greatest importance since “the markets depend on investors to provide capital at a reasonable cost,” Roper said.

Although financial advisors are doing a stellar job of regaining and cultivating clients’ trust for the long term, their efforts are more or less futile in the absence of system-wide financial sector reform and regulation, Roper said, particularly regulation that defines the advisor-client relationship as “a relationship based on trust.”

“The broad consensus is to apply a single fiduciary standard to all brokers and advisors alike, but [the regulators] still hesitate to act and bring this one to the table. Now, even a sophisticated investor does not know whether their financial planning professional is an advisor or a broker, and they won’t know until the regulation is changed,” she said.

Roper serves on the SEC’s Investor Advisory Committee. She is the 1991 recipient of NAPFA’s Distinguished Service Award and a 2004 recipient of Consumer Action’s Consumer Excellence Award. —Savita Iyer-Ahrestani

Click here to read the extended profile.

Knut Rostad

If you want to know about the fiduciary standard, Knut Rostad’s your guy. Off the top of his head he’ll rattle off details on the Advisers Act, on past SEC rulings, on the Committee for the Fiduciary Standard or the Institute for the Fiduciary Standard, both of which are advocates for the fiduciary standard and both of which he founded. He’ll give you informed insight into what the prospects are inside the Beltway for new fiduciary rules from the Department of Labor or the SEC.

Rostad is also realistic. Over the last six months he said there has appeared “greater clarity” in how the SEC might rule on a fiduciary standard, and “it’s not an optimistic picture.” A rule from the SEC as it stands now would “look like the commercial sales/suitability standard with some extra disclosure requirements. Every broker would proudly proclaim their fiduciary” bona fides, he said, while “brokers wouldn’t have to do much different than they do now. Investors would be far worse off.”

The DOL, he said, “is a different situation.” Rostad said that research from the GAO draws a picture showing that not only are “many, many investors […] not being treated with a fiduciary standard, it’s worse: there’s not even a suitability standard being met” in providing advice on retirement plans.

“I wonder,” he said, “if we’re a little too tolerant. Tolerance is good, but apply it to the situation on how advisors are handling clients […] deviating from the fiduciary standard. Leaders among advisors need to say, ‘It’s wrong.’” —James J. Green

Click here to read the extended profile.

Skip Schweiss

Skip Schweiss knows advisors. Skip Schweiss knows retirement. Skip Schweiss knows Washington. Skip Schweiss knows fiduciary.

So we asked him whether this could be a pivotal year for rulemaking on the fiduciary standard/redefinition at the SEC and the DOL. “I could spend an hour answering that question,” he said before giving us the abridged answer. “I say it’s like the duck going across the pond: On the surface, nothing seems to be going on, but underneath there’s a lot of action, though right now there’s no movement.” Since “it’s a mid-term election year, politicians won’t be doing anything.” And since “Congress by law has to approve an SRO for an industry, you won’t see that this year” either (sorry, FINRA).

What about more SEC funding? “Every year, Obama asks for a 25% budget increase” for the commission, but “they don’t get it” because the dollars come out of the House Financial Services Committee, and “the Republicans won’t give the SEC a 25% budget increase.”

And the SEC? “Mary Jo White hears [about fiduciary] everywhere she goes, but she’s got a lot on her plate” that has a higher priority. The Department of Labor, however, “has a less complex mission—to protect retirement plan participants and workers”—than does the SEC with its three-part mission, “which can conflict with one another.” While the DOL said its fiduciary redefinition will “come out in August, I’ll bet you it doesn’t happen then, and not before the election, but maybe shortly after the election.” —James J. Green

Click here to read the extended profile.

Janet Yellen

Regardless of who holds the position, the Federal Reserve chairman always plays an influential role in the financial services industry, for both investors and savers. But Janet Yellen, the first woman to serve as the chair of the Fed Board of Governors, arrived in office just as the Fed was beginning to tighten the quantitative easing spigot. As the Fed tapers, many observers worry about the effect on the stock market, while others are worried about the risk of inflation or deflation and everybody is worried about the effect of higher interest rates on economic growth and for the bond market.

Some have wondered, however, if Yellen’s tenure will simply be a continuation of her predecessor’s.

She said as much in her semiannual monetary policy report before the House Committee on Financial Services in early February, pledging to continue former Chairman Ben Bernanke’s work and emphasizing that she expects “a great deal of continuity in the FOMC’s approach to monetary policy.”

She added that she served on the committee as it formulated the current strategy. “I strongly support that strategy, which is designed to fulfill the Federal Reserve’s statutory mandate of maximum employment and price stability,” she said in February.

In an interview last year, another IA 25 nominee, Schwab’s Liz Ann Sonders, said that while Yellen is a consensus builder like Bernanke, she may not let the consensus-building process go on as long as he was wont to do. “She may make a decision faster,” Sonders said. —Danielle Andrus (Photo: Martin Klimek/ZUMA Press/Corbis)

Click here to read the extended profile.

Mark Tibergien

Mark Tibergien is the only person to have won a spot on the IA 25 for the 12 years of its existence. Is there anything new to say about his influence on the overall industry? Does he have anything new to say about the advisor business and its future? There’s plenty.

Let’s start with his focus on the importance of human capital. It emanates from three places: his experience as an employee; as a business leader at Moss Adams and Pershing; and a “combination of academic and professional studies that validated” what he already suspected.

Tibergien then segues into one of his trademark approaches: applying intellectual and process rigor to people management. “People tend to be somewhat superficial” about their management style, he said. “If you think the key to effective management is to say hello to employees in the elevator, you’ve missed the message.” Properly motivated (or not demotivated) members of your team can accomplish great things. “People are smarter than we give them credit for,” while “one of the worst things we can do is to underestimate people.” Doing so as a manager, “we create ‘dissatisfiers’ that take them from being a self-driven person to someone who just wants to get the hell out.”

For those advisor owners who are reluctant to let valuable younger employees participate in firm ownership, Tibergien pointed out that older advisors “were at one point younger advisors—they weren’t born with gray hair and hemorrhoids,” yet somehow “they were able to build businesses.”

Moreover, he noted that “every other profession uses a master/intern concept, but for some reason financial services prefers to eat its young.” He believes it’s necessary for leaders in the industry “to change the conversation about how they’re going to develop people,” focusing on becoming “an employer of choice.”

As for the future, Tibergien said he encourages everyone who has college-age kids “to take a look at” the profession, which is a “terrific business.” He does worry, however, that “we’re drowning in regulation, some of which contradicts and little that elucidates.” His coda? “It’s a tremendous opportunity—there’s still a lot of money that has to be managed.” —James J. Green (Photo: David Johnson)

Click here to read the extended profile.

Dale Brown

This is the eighth year that Dale Brown has been on the IA 25 list. It also marks the 10th year that FSI, the advocacy group for independent broker-dealers, has existed. By day, the BD members of FSI are fierce business competitors, so how does Dale Brown keep these rivals cooperating with each other?

“Over 10 years, we’ve had a laser-like focus on advocacy,” responded Brown, “and within that overall mission we make sure we’re working on issues that matter to our members and doing so in a constructive way.” Who are the regulators that FSI is trying to influence? Yes, the SEC and FINRA and the DOL, Brown said, but “the states are important for our members” as well.

FSI is halfway through executing a five-year strategic plan that includes a core strategy of “resource growth and member engagement.” FSI member firms “have supported us with their dollars to pay higher dues over time,” Brown reported, and to subsidize membership for their reps (35,000 are now members). Over the next year, “we’ll be working with the board on the next phase” of the plan, including “deepening members’ engagement in advocacy” and “getting members to meet with members of Congress in their own districts.” Another is FSI’s “thorough upgrade of our technology,” including a revised website and a member mobile app.

As for the aging advisor force, Brown noted the “numerous sessions” at its OneVoice conference on succession planning and the next generation of clients. “My expectation,” Brown said, “is that we’ll focus on this issue in our strategic plan for the next five years.” —James J. Green

Click here to read the extended profile.

Bernie Clark

The head of Schwab Advisor Services warms quickly to a favorite subject: the next generation of advisors. “The generation that’s coming behind: they look familiar, talk about having balance in their lives, want relationships, are very social.” Because of their social media bent, the next generation of advisors may be able to accommodate more clients per advisor, he suggested.

That investment in the next generation of advisors is evidenced by Schwab’s program under which students intern at Schwab offices. Schwab, he said, “may hire one or two of them, but our objective is to be in their local community,” and for those students “to be talking about Schwab on their campuses.”

At the same time, Clark “worries mostly about diversity” in the advisor and client ranks. “Women are underrepresented as clients,” and “young people who walk into an advisor’s office will want someone to walk along with them,” he said. “Ethnicity and diversity will be more important in practices.”

Schwab Advisor Services accounts for “half the company’s assets and a quarter of its revenue,” he said, and internally at Schwab, “we needed to not compete with each other.” He admitted that there may be “some open competition” between Schwab retail and Schwab’s RIAs, “but if a client happens to straddle the line, we may make a referral to an advisor or continue for a while at retail.” Chuck Schwab himself “sees the merit” of the RIA business and will be “doing some print and digital advertising,” acknowledging its importance. —James J. Green (Photo: Tom McKenzie)

Click here to read the extended profile.

Tom Nally

When Tom Nally was first honored on the IA 25 in 2012, his profile was as much about his predecessor at TD Ameritrade Institutional, Tom Bradley, as it was about Nally. Two years later, it’s all Nally, who has stamped his own personality on the RIA custodian.

While Nally is a cheerleader for the RIA model, he’s no Pollyanna when it comes to the challenges that RIAs and TDAI face. In an April interview with IA, he declared, “We try to be an industry leader in all the areas of the market where we engage,” but “we can’t be all things to all people.” He then listed the areas where he believes the firm shines: providing great service, “we publish our CSI scores in our advisor magazine—we’re transparent about that”; technology, critical to helping its RIAs “build scalable businesses”; trading, increasingly a “differentiator for advisors”; practice management, “we don’t want to be publishing white papers” but rather “take a more tactical solutions approach” reflecting “our fundamental belief in the RIA model”; and human capital, including in its hiring practices where TDAI management values job candidates for “what their capabilities are more than what their experience is.”

He admitted that as an industry “we still have a lot of work to do” in rebuilding trust among the public, and “we need to do a better job of adapting our business model to better serve” sectors of American society. That includes younger people, women, the less affluent and the less white. “It’s about embracing diversity; your team should reflect the market you’re selling into. We must attract more women and minorities.” —James J. Green

Click here to read the extended profile.

Nicholas Schorsch

In June 2013, RCAP Holdings said it planned to buy First Allied Securities and the Legend Group from Lovell Minnick Partners, a private-equity group. RCAP Holdings owns Realty Capital Securities, a wholesale broker-dealer and affiliate of American Realty Capital Properties.

Now, the Realty Capital organization has four more IBDs under its umbrella (though the deals are pending): Cetera Financial Group, Investors Capital, J. P. Turner and Summit Financial Services. This means it has close to 9,000 independent advisors serving about 2.5 million investors.

Also in 2013, Realty Capital Securities recruited Larry Roth from Advisor Group, the 6,000-rep independent broker-dealer network owned by AIG, to become its CEO. As a manager, Nicholas Schorsch is very supportive of those he works with, according to Roth: “He understands what businesses we need to be in. He expects everyone to work hard.”

Thanks to this work ethic and his business skills, Schorsch received the Ernst & Young Entrepreneur of the Year 2003 Award and the Ernst & Young Entrepreneur of the Year 2011 Lifetime Achievement Award for real estate.

First Allied CEO and President Adam Antoniades said Schorsch “sees himself as a strategic operator who’s there to serve as an asset to the group’s managers, to empower them to move on the business model, to take obstacles out of their way and to find solutions.”

That role is important because Schorsch “works at a pace and speed that are intense,” said Antoniades. “I have never experienced anything like it before.” —Janet Levaux

Click here to read the extended profile.

Dan Skiles

Dan Skiles’ profile was raised last year when he was promoted to president of Shareholders Service Group, the RIA custodian, but for many advisors, Skiles was already well-known from his work at Jack White and Charles Schwab. He’s among that elite coterie of advisor partners who thoroughly understand not just advisor technology but how it can best be used to improve a firm’s business.

Skiles is passionate about employee-owned SSG, which has grown rapidly since he joined the firm in 2009 from less than 400 RIAs on its platform to more than 1,200. SSG’s advisors are mostly smaller RIA firms, but Skiles argued that “size doesn’t matter anymore” because “with the world of outsourcing and cloud-based systems […], in some cases, firms with only $50 million in AUM can run and leverage better technology than even much bigger firms.”