You know the names of the U.S. senators from your state, and maybe even your representative in Congress. But the way Washington works, it’s the staffs of those members of Congress who do much of the real work in serving constituents and managing committee hearings, who write the speeches and craft the legislation. The analogy to this year’s IA 25? Often it’s the people without the corner offices, without the household names, who are bringing the advisory industry into the future.
In the 14th edition of the IA 25, we highlight those people who may be flying under the radar, but are nonetheless influential now and, in our estimation, will continue to be so. Please let us know what you think of our choices on ThinkAdvisor.com, where expanded profiles of this year’s IA 25 will appear throughout May.
Our prime exhibit is Department of Labor Secretary Tom Perez. While advisors active in the ERISA space long have dealt with DOL, its new fiduciary rule will affect all advisor channels — the wirehouses and the independent BDs, but also RIAs — who are more used to complying with SEC and FINRA (and state) regs than the complexities of ERISA. Perez himself took a back seat during the first go-round of the DOL rule’s proposal, but he’s now its main evangelist, and the rule will affect the entire industry for years to come.
Read about each of our 2016 IA 25 honorees and what makes them unique on the following pages and look for additional coverage on the honorees throughout the month on the IA 25 homepage.
(Photo: Victor Jeffreys)
Tom Perez, Department of Labor
Labor Secretary Thomas Perez will be credited with forever changing the nature of retirement advice.
After suffering years of slings and arrows from opponents in the Department of Labor’s battle to reshape its original 2010 rule to change the definition of fiduciary under the Employee Retirement Income Security Act, Perez stepped in and reenergized support for the rulemaking three years into its revamp. He used his political acumen, labor roots and sharp speaking skills to get the rule to the finish line.
Perez’s stint as the former Labor Secretary for Maryland “stood him in good stead in that he understood how to break a logjam,” said Barbara Roper, director of investor protection for the Consumer Federation of America.
While Obama Administration backing was viewed as a game changer in cementing the final rule’s eventual completion, it was Perez’s personal commitment and willingness to listen to concerns from industry as well as political detractors on Capitol Hill that sealed the deal. “He went on a listening campaign,” Roper said. “That helped him understand the concerns of rule skeptics, and to distinguish those concerns from the efforts of rule opponents who were never going to be won over.”
The revamped rule that was finalized in early April “was significantly different from the 2010 proposal in ways that made it easier to sell to skeptical Democrats on the Hill,” Roper added.
Perez said at the April 6 event at the Center for American Progress to announce the final rule that DOL “had a very lengthy and deliberate process,” and the final rule proves that DOL “listened and made changes.”
Roper, a staunch supporter of the rule from start to finish, opined that Perez “understood where the compromise lay that would produce a rule that would satisfy supporters and skeptics alike.”
While Perez has stated that the new rule will be able to withstand legal challenges, detractors maintain that the rule, while better than the initial rule in some areas, will still open a Pandora’s box of unintended consequences — mainly depriving low- and moderate-income savers of the advice they need.
Ken Bentsen, chairman and CEO of the Securities Industry and Financial Markets Association, an opponent of DOL’s rule, stated after the final rule’s release that he was most concerned with “the nature by which the government advocated for the rule,” and that the rule premise was based on that notion that “the brokerage industry’s business model ‘rests on bilking’ their clients.”
Supporters of the final rule are bracing for political and legal attacks. “We have to remain vigilant in supporting the rule on the Hill,” said Marilyn Mohrman-Gillis, the CFP Board’s top lobbyist.
Case in point: Rep. Ann Wagner, R-Mo., who sponsored the Retail Investor Protection Act, bipartisan legislation passed in the House that would require the Securities and Exchange Commission, not DOL, to take the lead on crafting a fiduciary rule, worked closely with House leadership and members of the Education and Workforce Committee to introduce a resolution in mid-April under the Congressional Review Act “to stop [DOL's] ill-advised rule.”
Mohrman-Gillis is also expecting an appeal to be filed against DOL’s final rule in the court of appeals.—Melanie Waddell
Cam Marston, Generational Insights
Cam Marston is a translator. Not of language per se, but of culture. Not of idiom, but of idiosyncrasies. He explains the nuances of different generations, most notably those of younger people, as employees and partners and clients, to owner-advisors and their partners who are overwhelmingly white, male and members of the baby boomer generation (and in other industry groups as well). He employs a homespun, gentle humor (with barbs) to point fun at the quirks of the different generations — including his own, Gen Xers: “Gen Xers are the most cynical, unhappy, unpleasant, unlikable people you’ll ever come across,” he says during his presentations. “If you think of someone you can’t stand, there’s a good chance they’re a Gen Xer.” Generalizations? Sure. Funny? You betcha. But the carefully crafted one-liners shouldn’t mask the serious education Marston provides. The life experiences, parenting styles and motivations of each generation are different, so if you want to attract and serve clients, and employees and partners, who come from generations different than yours, listen up and learn.—Jamie Green
Chris Paulitz, Financial Services Institute
The face of FSI is clearly Dale Brown, who’s appeared on the IA 25 list nine times out of the 14 years the list has been published. Or perhaps it’s one of the broker-dealer leaders who hold volunteer leadership positions at the association, such as current chair and Cambridge President Amy Webber. But there’s another consistent, knowledgeable and effective force at FSI. Chris Paulitz is quietly influential as the head of membership, sponsorship, marketing, communications, media and events for FSI.
Paulitz started his career as a journalist, and among the media, he’s known as an easy-going, insightful PR pro who’s clearly an advocate for the industry while remaining respectful of journalists’ different mandates. In his position there can be different ways of measuring success, but the numbers tell the story for Paulitz: the growth of FSI’s individual and corporate membership, its successful live events for BD executives and advisors and, most important for an advocacy group, its waxing influence in Washington. Having spent nearly 11 years on Capitol Hill as a communications advisor and director for two senators, Paulitz knows that the most important metric for someone in his position is not which bills or DOL regulations get passed, but to whom you have access. Measured that way, Paulitz and FSI are extremely successful.—JG
Clara Shih, Hearsay Social
A pioneer in the social media industry, Clara Shih developed the first social business application on Facebook as a side project in 2007, which led to the birth of Hearsay Social two years later.
She admits she never saw herself working within the financial services industry.
“Frankly, Wall Street firms found us,” Shih said. “They said, ‘These life events that you find — the fact that someone has just gotten married or had a baby or changed jobs or is thinking of retirement — those are exactly the trigger points around which we want to talk to clients.’”
Shih found herself in a large and underserved market when it came to social media.
“Because of regulatory compliance, advisors can’t use all of these digital marketing tools that are available. That’s why you end up with […] advisors who have either no website or they have websites that are worse than the nail salon or the grocery store down the street.”
Hearsay Social no longer focuses just on social media, finding advisors’ needs were larger.
“We realized that advisors have to connect and engage with their clients on every digital channel,” Shih said. Last year, Hearsay launched the OmniChannel, a marketing and sales platform for advisors that covers social media, advisor websites, advisor email marketing and compliant text messaging.—Emily Zulz
Colleen Bell, Cambridge Investment Research
Why would an independent broker-dealer that successfully pioneered the BD fee business be worried about complying with the DOL’s fiduciary rule released April 6? That seems to be the modus operandi at Cambridge Investment Research, which doesn’t leave its business model or compliance issues to chance. Exhibit No. 1 for Cambridge’s proactive approach to meeting the regulatory challenge imposed by the fiduciary rule is Colleen Bell, who earlier this year was named to the new position of first vice president of fiduciary services, with responsibility for preparing Cambridge and its independent contractor reps for complying with the DOL fiduciary rule. The division at Cambridge has drawn on existing teams that work on advisory services and retirement planning issues to prepare for the rule long before April.
Bell has been at Cambridge for 10 years; prior to that she was an SEC examiner. How will DOL enforce the fiduciary rule? “We’ve seen some sweeps already from DOL,” Bell reported, though mostly in the form of audits of retirement plans. However, “we need to be prepared to work with those auditors” on both the plan side and the IRA side.—JG
(Photo courtesy of Betterment.)
Jon Stein, Betterment
Betterment’s had a heck of a year. With the launch of Betterment for Business, its robo-401(k), and Betterment Institutional, a digital platform to aid advisors, it’s grown the number of customers it serves from 50,000 in January 2015 to 150,000, while assets have grown from just over $1 billion to over $4 billion.
CEO and co-founder Jon Stein started in the financial services industry at First Manhattan Consulting Group. “In my years working with banks and brokers,” he saw “they were building products, not really building advisory services,” he said.
That led him to start Betterment in 2008, right in the middle of the recession. “On the one hand, there was something of an opportunity because there was distrust in the traditional financial institutions, and at the same time, I think a lot of the traditional financial institutions were distracted by regulatory concerns and keeping their businesses afloat.” Stein saw an opportunity to bring “trusted advice” to consumers and to “make that advice accessible to anyone who wants it.” The consumer platform was officially launched in 2010.
The future of financial services is in advice, he said, not products. “Our goal is to be our customers’ central financial relationship. We want to continue to build out more advice, more financial planning, to really give our customers a holistic sense of what they should be doing with their money.”
Betterment isn’t necessarily competing with other robo-advisors or with traditional advisory firms, but with the “do-it-yourself kinds of brokerage firms; the traditional big firms, the Vanguards, the Schwabs, eTrade, Fidelity, etc.”
As for the moniker “robo-advisor”? He said, “We don’t mind it. We think it wasn’t originally meant to be a complimentary term.” The term is a useful shorthand for consumers to understand the service, but it also “lumps everyone together,” Stein said.—Danielle Andrus
David Grim and Stephen Luparello, SEC
SEC Chairwoman Mary Jo White has been the public spokesperson championing the agency moving ahead on its own uniform fiduciary rule for advisors and brokers, but David Grim and Stephen Luparello have been toiling behind the scenes to make it happen.
White said recently that the agency is “without doubt” working on its own fiduciary rule and that Grim, head of the SEC’s Division of Investment Management, and Luparello, head of the agency’s Division of Trading & Markets, and members of their staff are discussing the “parameters of recommendations” regarding such a rule with SEC commissioners.
But two former SEC executives have differing opinions about whether the SEC can actually pull it off. Bob Plaze, a partner at Stroock & Stroock & Lavan LLP in Washington, has said that the two divisions’ “different interests” regarding the rule’s outcome will stymie progress.
Former SEC Chairman Harvey Pitt told IA, however, that “Steve and David are excellent division directors,” and that “my sense is they will be in constant touch with the chair and the other commissioners as they work out their differences.”—MW
Ed O’Brien, eMoney Advisor
Ed O’Brien typifies the kind of person that this year’s IA 25 seeks to honor. A person of deep competence in his specific field (in O’Brien’s case, advisor technology) who exhibits broad knowledge of advisors’ challenges (gained over 30 years toiling in Fidelity Institutional’s advisor technology trenches) and a record of producing solutions for advisors matched by a passion for the independent advisory industry.
A holder of a U.S. Patent with experience overseas, in March O’Brien was named CEO of eMoney Advisor, which Fidelity majority acquired last year, replacing the estimable eMoney founder, Edmond Walters. While it began life as financial planning software for advisors, eMoney’s trump offering may well be its emX digital wealth management platform, designed for end clients but provided through advisors.
As Michael Durbin of Fidelity Wealth Technologies said in announcing O’Brien’s ascension, “I’m confident he will help us further establish eMoney as the strongest ally of advisors seeking to meet the growing high-tech and high-touch expectations of their end clients.”—JG
Eric Clarke, Orion Advisor Services
The key to serving advisors’ unique technology needs is integration, according to Eric Clarke, founder and CEO of Orion. “Every advisor we work with is unique. The way they deliver value to their clients is unique,” he said. “We believe every advisor should have the ability to choose the systems that are the best fit for their firm and will enhance their ability to add value to their client experience.”
Since founding the firm in 1999, Clarke has grown Orion to serve over 800 advisory firms with $280 billion in assets under administration by helping them meet their individual challenges, whether that’s helping them integrate their disparate systems, serve their clients better or reduce the costs caused by increased regulations.
“As the regulatory requirements of advisors increases, we’re big believers that advisors need to use technology wisely so that they can not only efficiently serve their current client base but also their future clients,” Clarke said.—DA
Fred Reish, Drinker Biddle & Reath
Since the DOL released its final fiduciary rule in early April, ERISA guru Fred Reish has been answering questions from existing clients at all hours of the day and night, and his client roster is ballooning.
That’s not surprising, really, for an attorney who’s been steeped in ERISA law since “before there was an ERISA,” he likes to quip.
Reish, based in Drinker Biddle & Reath’s Los Angeles office, serves a nationwide clientele of hedge funds and mutual fund managers, RIAs, insurance brokers and broker-dealers, as well as banks and trust companies. But it’s broker-dealers that are clamoring for his help in deciphering DOL’s rule.
The changes for BDs in DOL’s rule “are revolutionary and highly disruptive,” Reish said. “These rules are truly complex.”
For BDs, the biggest challenge is that DOL’s rule is “essentially based on a fee-for-service concept, and [those regulations are] being applied to a transaction-based industry.”
What’s more, he added, “the fiduciary standard is different from the suitability standard and more demanding.”—MW
(Photo: Shane O’Neill)
Naureen Hassan, Morgan Stanley
Charles Schwab seemed to have found the perfect leader for its robo-advisor initiatives in Naureen Hassan, who joined Schwab in 2003 from McKinsey. The initiative — rolled out for retail clients in March 2015 and for advisors in June 2015 — amassed $6.6 billion in assets by March 31.
Intelligent Portfolios’ success drew attention not just to Schwab but to Hassan, and Morgan Stanley lured her away to lead the strategy and marketing of digital tools and platforms for the wirehouse’s 16,000 financial advisors and 3.5 million clients.
Hassan, tapped as the firm’s chief digital officer, remains in San Francisco, where she can keep tabs on the latest Silicon Valley developments.
Why the move? “My decision […] relates to my views of the future of wealth management,” Hassan told IA. “I believe successful firms in wealth management will combine the power of relationships through a financial advisor with the ease, simplicity and convenience that technology enables.”
Like many in the industry, she says robo-advisors cannot replace their human counterparts, but, the Princeton and Stanford Business School graduate asks, why not let technology do what it does best? “Modern technology has the power to simplify advisors’ lives by automating mundane tasks — opening accounts, rebalancing portfolios — freeing them up to spend more time with their clients,” she explained.
The plus side for clients is that more technology means less time and energy spent on paperwork. “Now it is about managing your finances anywhere and anyway you want — online, mobile, video,” Hassan stated.
“The winning firms will be able to combine the power of financial advisors with leading-edge technology. Morgan Stanley […] is incredibly strong with one part of that combination. I wanted to help complement that strength with technology to lead the industry,” she said.—Janet Levaux
Jane Jarcho, SEC
When Jane Jarcho is talking, advisors’ ears should prick up.
Not only has she headed the SEC’s advisor/investment company exam program since 2013, but she was also named in February as national director of the agency’s Office of Compliance Inspections and Examinations.
Jarcho oversees about 600 lawyers, accountants and examiners responsible for inspections of RIAs and investment companies.
Under her leadership, advisor and investment company exams increased more than 27%, with OCIE initiating targeted exams in the areas of cybersecurity, never-before-examined investment advisors and investment companies, alternative mutual funds, fixed income funds and retirement accounts.
Jarcho was the first SEC executive to sound the warning bell that the agency would be cracking down on advisors’ cybersecurity preparedness. The second round of cyber exams started last October, but will primarily take place in fiscal 2016.
The agency is said to be proposing this spring its rule to require that advisors receive a third-party audit.—MW