As there are in life, many stereotypes exist within financial services and they are often misguided and incorrect. It is human nature to label someone or something before meeting them based on very little information we have about them. More often than not, we have done this prematurely and quickly change our opinions.
We have been inundated with conversation recently around the ongoing debate of suitability versus fiduciary care for clients. This debate comes down to the "advisor" against the "broker" and vice versa. FINRA and the SEC. In almost every article and conversation on this topic I conclude that there is a clear lack of understanding of how the "other" is serving their clients.
From the independent advisor's perspective: they feel they (and only they) are on the same side of the table as the client and the broker is only selling product manufactured by their employer and receiving a commission, right?
Advisors in the wirehouse or regionals, thinks the independent advisor is working from their home office in the basement and selling Variable or Indexed Annuities, right?
No, completely wrong, all of the above is not true. And please, can we stop using the term broker? The wires haven't used that term in over a decade. And to all the wirehouse Advisors, there are many RIA's and Advisors affiliated with independent broker/dealers that are extremely sophisticated, offering more client solutions than you and are successfully competing with you when it comes to gathering new assets.
Interesting to me how both sides think the other is selling product only, which is clearly not true. In the ongoing recruiting battles, which are only growing more aggressive, all parties are trying to capture each other's attention. Independent broker/dealers and the institutional custodians serving RIAs, are marketing to the breakaway advisors. Independent firms are recruiting from each other. And a more recent development, the wirehouses are recruiting Indy Advisors, sometimes reversing the Advisor's previous move away from the W-2 model. This is not common enough to be a trend, but it is happening.
For this piece only, I am going to group Registered Investment Advisors and Advisors affiliated with an independent broker/dealer in the same group due to the reason that wirehouse Advisors do not know the difference. You will notice that I am generalizing throughout this entire piece, but that is unfortunately where stereotypes come from.
Independent advisors are stereotyped as existing on an island with no operational support, technology, compliance and client security, another Madoff in waiting. They are not sophisticated and do not have the ability to hang the name of a "prestigious" Wall Street firm behind them. The single largest stereotype is the Advisors who have failed out of the wirehouse, goes independent.
Wirehouse advisors push product, and they push it often to secure the commission. Their employers are more interested in selling in-house "solutions" to grow the bottom line rather than doing what is in the client's best interest. Wirehouse advisors sell "B" share mutual funds.
No, they don't.
I see advisors providing discretionary portfolio management and outside money management with equal performance, research and sophistication coming from both sides. I see comprehensive financial planning via Certified Financial Planners provided to clients with equal care from both sides. An equal amount of CFP's and CFA's exist on both sides. Research has become a commodity and is widely accessible to all including the client. I see the family office model existing on both sides, and overall I see Advisors on both sides providing the greatest level of care to their clients, without having to "label" it suitability or fiduciary care because it is based on what is best for their clients. And lastly, who wouldn't mind working from home once in a while!
Ned Van Riper is Managing Director with Finetooth Consulting and Co-founder of Join A Firm. He has 13 years of industry experience split between the wirehouse and Independent channels.