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Blogs - Wealth of Ideas
Goldman Sachs Resignation Fallout Should Help, Not Hurt, RIAs
Financial Planning, On Wall Street, Bank Investment Consultant and Money Management Executive
Friday, March 16, 2012
Partner Insights

Wall Street is obsessed with the bombshell resignation from Goldman Sachs announced in a New York Times op-ed column. Should financial planners care? Will the accusations of Greg Smith — that the banking behemoth cares deeply about its bottom line but not so much about its clients — give clients nationwide a new reason to be wary of their advisors?

The answers from two planners — Dave Grant of Vantage Financial Partners in Arlington Heights, Ill., and Rick Carlson of Carlson Advisors in Tomah, Wis. — were intriguing.

“I read that piece with interest yesterday and was glad that someone had the courage to put into writing what many advisors already know,” Grant told me. “Younger planners in particular are already sensitive to the notion of selling products to clients, and pieces like this make them even more wary of researching employment at a big Wall Street firm. Many young planners are expressing an interest in only working in the fee-only profession, and those that go off into these Wall Street firms often come out a little jaded,” added Grant, who is founder of NAPFA Genesis, a group of fee-only planners age 33 or younger.

“I spoke to a colleague at a study group recently and he told me how working at one of these firms was hard for him because the system was ‘broken’ for the client. The only way he could comfortably provide advice was leaving to join a firm where advice was valued over product sales.”
Grant noted that, “Being employed by an independent firm, I was happy to read this piece. We frequently see people who have investment accounts at these firms, and the next year it may look completely different, implying that product sales are driving the make-up of the account and not the goals of the client. When we explain our investment philosophy and how it is related to goals and not products, they don’t understand why their previous advisor was not doing that. … It makes our job at an independent firm that much easier.”

For his part, Carlson worried that the political response to Smith’s charges would be a broad-brush approach to regulating the financial industry — all of the financial industry.
“Good or bad, we are to some extent lumped in with all investment firms, and so our reputation for what we do for a living is harmed,” he told me. “The real downside to this story, and events of the past three years, is the excessive regulation we are facing as an industry. That, more than anything, is the greatest threat to our ability to serve our clients. … This article probably just adds fuel to the fire for this administration to keep regulating.”

But Carlson noted that, from his base in rural Wisconsin, “as an independent advisor in a small town, the events at Goldman Sachs don’t have any direct bearing on the relationships we have with our clients. Our clients continue to trust us to give them our best advice. Those advisors that do that will be able to maintain good relationships. I don’t know that I would go so far as to say that the Goldman Sachs story will enhance our position with our clients. My experience has been that clients are not really concerned with the firm that you work for, as they have a relationship with ‘me.’ ”

The pain is shared widely when the reputation of an industry is called into question. That said, clients do understand and value their planners’ independence. If anything, personal relationships between advisors and clients will mean that much more in light of the latest revelations from Wall Street. 

(3) Comments
> As CEO of a new RIA firm I have gotten emails and calls non stop on that goldman op -ed--I can say that it is helping us and we feel that the culture of greed at the big firms that puts itself ahead of clients and diminishes the humanity and creativity of the individual is what we are fighting against every day. People are more important than profits, and when you put them first either as clients or employees, profits will follow. Unfortunately the cultures that the firms have created promote only those that can bully downwards and are craven upwards. By toadying to your bosses and threatening your reports you never get any real answers and management runs from one fire to another. Cowardice and fear reign at these firms, innovation, straight conversation, and inclusive leadership are gone.
Posted by tony s | Friday, March 16 2012 at 5:33PM ET
If we drill down past implications for our industry and profession, we see it still boils down to people - their values, their aspirations, the cultures that shape them, the way in which they carry out their practice. With the revelations of a Goldman Sachs insider comes real credibility to the claims, assertions and testimonials of those outside the culture who have been impacted by Goldman.

However, change will not come to Wall Street, nor to its culture which shapes our values as a country with regards to money until individuals resolve one by one to be trusted advisors over becoming wealthy as product and deal salesmen and women.

At the moment, I'm afraid, there is NO "high moral ground" on Wall Street.

I've attached a link to my personal thoughts on Greg Smith's resignation here:


Posted by Eric B | Friday, March 23 2012 at 3:40PM ET
Within the brokerage industry there is no large scale institutionalized support for fiduciary standing that makes advice, safe, scalable, easy to execute and manage. RIAs have no scale and broker/dealers with scale will not acknowledge fiduciary standing of the broker. It is long established that broker/dealers, whether large or small, independent or employee firms do not acknowledge or support fiduciary standing. So, RIAs aligning with an independent broker/dealer for their support of fiduciary counsel essential for an RIA to function is at best highly misleading.

Just ask the broker/dealer whether it is responsible for and supports in writing the advice its brokers are rendering.

Not one such firm exists. Such permission to act in a fiduciary capacity is very rare and is only granted by exception of circumstance and the broker's skill. Otherwise, brokers do not render advice and it is a violation of internal compliance protocol for brokers to acknowledge they render advice and have ongoing fiduciary duties to act in the client's best intererst.


Posted by Stephen W | Monday, March 26 2012 at 8:52PM ET
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