How Banking Woes Create Business for Advisors

Turmoil in the banking sector has created some positive momentum for financial advisors at Raymond James and some other firms, says Scott Curtis, president of its Private Client Group.

Clients are “concerned about their cash” and have been taking cash at troubled financial institutions and moving it to Raymond James, for instance, according to Curtis, who said Monday that the firm aims to have $2 trillion in assets under advisement by 2030 — roughly double what it has today. 

“We’ve seen some advisors’ clients move over a significant amount of cash. It’s a nod of confidence to our brand, as we saw in 2008 and 2009 … ,” he explained. “Everyone wants to feel and trust that their business or their investments are safe.”

Curtis outlined his views on the state of the advice business at Raymond James’ 2023 Elevate National Conference, which has brought several thousand of the firm’s independent advisors to Orlando this week. After his presentation, he spoke with ThinkAdvisor about the future of the advice business.

THINKADVISOR: You said on stage that Raymond James is committed to the advisor-centric model and won’t be creating a direct-to-consumer strategy. Can you elaborate/?

SCOTT CURTIS: Yes, and to begin with, let’s think back to the late 1990s when Scottrade and E-Trade first came out. At that time, there was this big discussion: Why would anyone need to work with a broker when you can just do it all yourself for $20?

Back then, approximately 20% to 25% of those with $100,000 in investable assets referred to themselves as self-directed. Here we are some 25 years later, with a much more robust technology landscape, and that percentage has stayed pretty much the same. When you go up the asset scale the number really falls, as well.

So, that’s the real point here. We believe in and are fully committed to the model of human-centric advisors taking the lead with their clients.

And, let’s be clear. Developing a direct-to-consumer business is not just a snap of the fingers. There’s a big marketing spend required, and ultimately, you have to decide if you want to compete with your own advisors — or if you want to do what we are doing and focus your energy and resources on supporting your advisors.

For us, this is a clear decision. Our focus is on serving the advisors. The advisors are our clients, and we have a duty and a responsibility to them. This is where we can best compete.

Of course, we are leveraging technology and evolving with the times. We are delivering more self-service capabilities for those clients who are interested in directly handling certain transactions on their own.

For example, depositing a check is something clients want to do on their own and are comfortable doing on their own, and we make that possible for them. Simple account transfers are the same, but when it comes to managing the bigger picture and crafting the financial plan, the human advisor’s role remains crucial.

The same is true when it comes to estate planning, charitable giving, legacy planning, etc. You could theoretically do all this yourself as an individual consumer with the right tech, but the human expertise that an advisor is bringing to the table is essential. We believe that, and we aren’t going to be changing our direction.

Your colleague Jodi Perry spoke at the conference about the Department of Labor’s proposed regulations about the reclassification of independent contractors. Can you explain what’s at stake for Raymond James and its independent advisor force/?

This is an important issue, and that’s why we are happy to have Jodi Perry, the president of our independent contractor division, on the board of organizations like the Financial Services Institute, which is advocating against this development.

The Securities Industry and Financial Markets Association (SIFMA) and the American Securities Association are also active on this issue. These groups are all strongly opposing anything that would jeopardize the independent contractor status of advisors who choose to operate as such, as independent contractors.

What is going to happen remains to be seen. Ultimately, if we assume the worst and that advisors who are registered with a broker-dealer and who are acting in an independent contractor capacity cannot continue to operate in that way, they would probably be left with two primary choices.

One is to effectively become a statutory employee, with some nuances. At Raymond James, we have an option called Advisor Select where you essentially pay your own expenses and you pick your own real estate, but you are an employee, and you get to take advantage of the firm’s benefit plans.

The Advisor Select approach is functionally pretty similar to being an independent contractor, because you remain responsible for your own expenses. We assist you with the accounting so that you can make that happen.

Critically, this model isn’t viable for everyone, and your location matters. It works well in 49 states, I would say, but it doesn’t work in California nearly as easily, given their own local rules and regulations. Basically, in California, we can’t deduct business-related expenses from an employee’s pay, and that makes the model difficult.

The second option would be to take a fundamentally different route. If you can’t be an independent contractor and maintain a Financial Industry Regulatory Authority (FINRA) registration, you may have to just drop that registration and become a fee-only advisor operating under a registered investment advisor.

A financial professional in this situation would have to roll up under a separate RIA — maybe a corporate RIA. This is because, basically, it is the FINRA supervisory requirements that get in the way of these folks being able to maintain the independent contractor status. That’s where it gets more complex for these people.

Ultimately, what I can say today is that we continue to engage on this, and we are grateful to our advisors for being involved. They have sent thousands of letters to elected officials opposing any elimination of the ability to remain an independent contractor registered with a broker-dealer or an RIA.

We remain optimistic that there will be a carve out, I will add, because our profession is not really at the core of the bigger issues that are at the heart of this particular policy discussion. We feel good about those chances, but we aren’t being complacent about this.

Changing gears, when we talk about banking sector turmoil, does that make the job of recruiting talent easier/?

So yes, it has impacted the recruiting opportunities we have. That’s clear.

Also, though, our advisors are seeing an opportunity that is just as important. Frankly, their clients are concerned about their cash, and many of them have seen clients take cash that was sitting at some of these troubled financial institutions that have been in the news and move it to Raymond James.

We’ve seen some advisors’ clients move over a significant amount of cash. It’s a nod of confidence to our brand, as we saw in 2008 and 2009.

To be clear, this is not unique to Raymond James. Many of the largest, too-big-to-fail organizations have also seen a tremendous inflow of cash in recent months.

Separately, yes, there are advisory teams out there looking for a new home, and some are in discussion with us. Firms out there may not even be on the brink of insolvency or existential issues, but the advisor and client perceptions matter. Everyone wants to feel and trust that their business or their investments are safe.

Your question takes me back to 2008 and 2009. At that time, clients were wondering, how safe are my investments, and how safe is my cash at Raymond James/?

That experience led us to create some very useful tools and resources that are client-approved. Our people can and do share these resources regarding how their investments and cash are protected here at Raymond James, and it brings a lot of peace of mind.

Can you discuss the growth you are seeing in fee-based assets and revenues versus the brokerage business?

It’s interesting, because we have seen a long-running trend towards fee-based, yes, but I think there’s an open question here: When do we reach the point at which the fee-based assets stop growing at a rate that is materially faster than the overall growth rate?

I don’t think anyone really knows, but my gut tells me we are getting closer to a point where the fee-based and commission-based assets come to grow at the same rate.

That would be the logical outcome, because we know that not every client relationship is better off in an advisory account versus a commission-based brokerage account.

There are some high-net-worth clients, for example, who are accessing private equity opportunities and other unique investment opportunities that only come in a commission wrapper. We are pushing for the creation of both approaches, but some of the big opportunities today just aren’t built to be advisory in nature.

So, I personally don’t think that we will get to a point where fee-based advisory assets are 75% or 80% overall, as some might predict. We are ticking up in terms of fee-based assets, but that rate of growth relative to the overall growth has slowed.

When you think about the topic of “retirement” and what Raymond James is doing to help Americans prepare for and enter retirement, what does that bring to mind?

Well, it is definitely an important topic. If you think about where we are today in the industry and where we will be in 10 years, you cannot look past the impact of demographic change. The mass retirements of baby boomers and the growth of millennials in their careers will be two major trends.

It’s interesting, because “retirement” is often talked about as an age or an event, but we have so many advisors who are serving a fair number of clients who are at “retirement age,” but they aren’t retired. Many people are continuing to work beyond the traditional retirement age, while others are dedicating their time to a cause or a passion.

So, when I think about retirement, yes I think about the financial aspect and the complex income planning that is needed — but we also know that the clients need to retire “to” something. You can’t just retire “from” something, from your last job or career, and expect to have a fulfilling life after work.

It’s a cliche, but you can’t just plan to play golf five days a week. It’s going to get old.

What this means for us as a business is that we have to be really good at helping our advisors with things like advanced cash flow planning and ensuring all the tools are in place for advisors to deliver tax-efficient income and estate planning in the context of a robust set of goals.

What we see in practice is that clients really need an advisor-driven framework to look at their assets and look at their expenses. Only then can they set goals and lifestyle preferences.

Is the process of investing for and during retirement shifting given today’s longevity landscape/?

Yes, without question. That’s something we are actively discussing and reassessing — the asset allocation question in retirement. Years ago, as we all know, the average life expectancy was not as great as it is now. People are generally just living a lot longer, and that has portfolio implications.

When you take people who actually have means, if they are healthy at 65, they have a real longevity factor to think about. It’s a great problem to have, but someone who hits the traditional retirement age today with their health intact may have 30 or 40 years to plan for.

Naturally, we are seeing financial planners discuss higher allocations to equities. They know the bite of inflation will harm their clients over the long term and that investing more in equities is one way to address the risk of outliving your assets.

It raises a fundamental question about what it means to be a “conservative” versus “risky” investor in retirement. I like to say that the definition of what is a conservative versus a risky retirement portfolio has to take on a bit of a different meeting.

Because really, what is riskier? Leaving some higher portion of assets in equities or going with a nominally conservative portfolio that could very likely leave you short of money late in life when you really need it? Both are risky, just in different ways.

There’s obviously a balance to be struck here, based on a client’s risk profile and preference. For our advisors, it’s all about having meaningful conversations with clients to really understand what their desires and their needs are.

(Pictured: Scott Curtis of Raymond James)