Eugene M. Lerner has spent the better part of his six-decade career in the financial services industry trying to stay ahead of the curve.

His decision to leave Morgan Stanley Smith Barney and take his $600 million book of business to HighTower, a Chicago-based based advisor-owned financial services firm, was all about trying to stay ahead of the curve.

“The truth is, the wirehouses have passed their peak,” Lerner, 83, said in an interview Monday. “I have always thought it was fun to be a financial advisor. It is all about having fiduciary relationship and doing the best you could for your clients. But by in large, the wirehouses are about manufacturing products and they want you to sell those products. We have always worked on the concept of trying to do right by our clients.”

That said, Lerner joined Morgan Stanley after running his own registered investment advisory firm, Disciplined Investment Advisors, for more than 20 years.

“You can’t rule out that I’ve made some mistakes in my career,” he laughed. “But the wirehouse model was broken then, too.”

Lerner, a professor emeritus of finance at Northwestern University’s Kellog Graduate School of Management, has always been a scholar first and said he still enjoys learning, even if it’s from his own mistakes. He holds a doctorate in economics from the University of Chicago and a bachelor's and master's degree in economics from the University of Wisconsin.

He has also written eight book on financial and investment strategies and more than 60 articles for scholarly journals. He has worked as a visiting faculty member at universities in Thailand, Korea, South Africa, Ireland, France, Ecuador, Venezuela and Switzerland. He was a senior economist to the House Banking Committee, was an economist for the Federal Reserve Bank of Chicago and has testified at numerous legislative hearings on financial issues.

He was taught by Milton Friedman, who he fondly referred to as “Uncle Miltie,” and taught Alan Greenspan, when Greenspan pursued a doctorate in the 1970s.

Lerner said Friedman taught him a lot about supply and demand, and, even after a long career in the financial services industry, those lessons resonate because, Lerner said, there remains a “certain simplicity” to wealth management.

“If you look at the reality of things, people want income, safety and clarity,” he said. “No one is interested in [wild investment strategies]. People are thinking along more basic lines now. I think the optimal mix is a heavy bond portfolio.”

Lerner said he would’ve laughed 10 years ago if someone told him that he’d be advising clients to invest in bonds. “Those were fuddy duddy investments,” he said. “Now if you don’t buy bonds, you are out of touch.”

But if Lerner’s career proves anything it is that being a financial advisor is all about agility and adapting as the industry evolves. For example, when Lerner launched Disciplined Investment Advisors in the 1980s, the firm focused on offering one strategy (large cap value) to institutional clients. At its peak, the firm managed more than $1 billion in assets.

“I remember when I found that strategy, I thought I died and went to heaven because it did nothing but make money,” he said. “But, then that world came to an end. People wanted growth. I had to transform.”

Lerner said he’s seen every investing fad come and go from “value to growth to tactics to alternative investing.” Today, clients want steady and solid income, he said, and they don’t want to be charged extra to buy certain products. “We chose HighTower because it is the future,” he said. “This industry is moving to an independent mindset.”

Walter “JR” Gondeck Jr., one of two advisors to move from Morgan Stanley to HighTower with Lerner, said that the group considered every option, including total independence, but HighTower’s multi-clearing, multi-custodial platform was enticing.

“HighTower has a wonderful infrastructure, which was an attractive alternative to total independence and we think that the wirehouse model is broken,” Gondeck said.

Philosophically, Lerner said the Dodd-Frank legislation has been “deadly for the wirehouses” and, though he thinks the wirehouse model will never completely disappear, he expects “the trends will continue” as large brokerage houses hire more slowly as assets slowly dwindle.

“The wirehouse name has been tainted over the last 10 years,” he said. “They will always have a presence; they may always hold the majority of the assets. But slowly the tide will turn as advisors consider other options.”

Matt Ackermann writes for Financial Planning.


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