What a Difference a Week Makes
In my last blog I wrote about the feeling of being overwhelmed by all of the tasks set before me. As we all know, if there’s one thing that’s constant, it’s change. What a difference a week can make. You see, even though I still have to wear a lot of different hats, I can now see light at the end of the tunnel. Since my last posting, a new path has opened before me. A path of opportunity and it came along at just the right time. Let me explain.
A little over a year ago I met a new friend who introduced himself to me as a business consultant. Let me provide you with some background. He is a graduate of Cornell and taught at Harvard for a period of time. He has worked in the Carter White House, served under Reagan for both terms, and also the first Bush presidency. Over the years, he has had the opportunity to meet with some of the most influential people in the country. The work he was empowered to do was, in part, as a consultant on a variety of issues. He was planning to help with me a few months ago but circumstances beyond our control prevented this. Now that the path is clear, he is back in the picture and I am excited about the prospect.
Here is one way he will be able to help me. Over the past 20+ years, I have gathered a good deal of knowledge about this industry we call financial services. I have read books, attended seminars, attained designations, and diligently applied myself to my vocation. I have a compiled a lot of ideas, some of which I have implemented but many of which are still ideas or at least, in the very early stages of development. Though I possess some degree of knowledge and experience, I find with all of these moving parts, it has been a challenge bringing everything together into a cohesive plan. I was aware that I needed to create a strategic business plan but I also knew I didn’t possess the knowledge required and would have to spend time learning what to do. Of course I could buy software, some perhaps with a wizard to walk me through the process, but I didn’t know which one to buy or even if it would be any good. The bottom line, I thought I was just too busy to do it. With his assistance and guidance, we are going to craft a mission statement and a strategic business plan.
I am optimistic about what this will bring. I’ll keep you posted.
In regard to developing your business plan: I’m sure that a major component of that plan will be the strategy of marketing your firm as a fiduciary. But what if the major financial firms of the world — in response to the end of the Merrill Rule — accept the fiduciary responsibility, and in fact, embrace it?
What then, will the independent RIA do to compete?
From Melanie Waddell’s IA article “Protect Yourself”:
“…a lot of folks in the industry and in the media mistakenly believe that the (Merrill) ruling ends fee-based accounts for B/Ds. The ruling states that if a B/D is going to offer fee-based accounts, they have to “take on a fiduciary role and put the interest of clients first,†he explains. Because brokerage firms are already RIAs, the onus really falls on the broker/dealer rep to register. “Everybody is saying this is the death of fee-based accounts and the court has prohibited them, but they really haven’t,†Caruso says. “All the court said was that if you’re going to offer a fee-based account, you have to agree that you are a fiduciary. Brokerage firms offering fee-based services could be dually registered, and all of them pretty much are; it’s a question of whether the sales rep is registered as an investment advisor rep.â€
Most wirehouse reps have their Series 65 or 66 these days, so this doesn’t look to be a problem…
…except perhaps for RIAs? Curious to hear your thoughts.
Logistically, reps of B/Ds being IARs is not a problem. However, traditionally, products finding their way into customers accounts in wirehouse scenario has been through bonus grids and quotas. If XYZ fund is paying out extra or having a “contest” to go to St Thomas and XYZ fund shows up in majority of accounts supposedly fiduciarily managed – that is a problem. If wirehouses change their ways and put the customer first [fiduciary standard] then as an RIA I would salute them. Managing customer’s investments and financial life by the fiduciary standard is what I think wirehouses will take some time getting used to. Not to say that some already do. But the wirehouse culture in general is not oriented to the customer first fiduciary rule. In my opinion.
Logistically, reps of B/Ds being IARs is not a problem. However, traditionally, products finding their way into customers accounts in wirehouse scenario has been through bonus grids and quotas. If XYZ fund is paying out extra or having a “contest” to go to St Thomas and XYZ fund shows up in majority of accounts supposedly fiduciarily managed – that is a problem. If wirehouses change their ways and put the customer first [fiduciary standard] then as an RIA I would salute them. Managing customer’s investments and financial life by the fiduciary standard is what I think wirehouses will take some time getting used to. Not to say that some already do. But the wirehouse culture in general is not oriented to the customer first fiduciary rule. In my opinion.
What would it take for a b/d to allow and register their reps as an IAR? They would have to scrutinize their reps activities even more because of the fiduciary standard required. They might have to be more selective in their hiring. Their liability would certainly have the potential to increase since there would be a higher standard. The trip incentives would have to stop or at the very least disclosed to clients. Could you imagine a rep saying, “Mr client, I recommend this investment, not because I can win a trip to Tahiti but because it really is the best for you (ha, ha, snicker, snicker). I agree, the b/d would not only need a face lift but an entire overhaul! Even if they embrace this change, it would take quite a while to fully implement. These “large ships” turn very slowly.
Hey, Mike. Check out this site. http://www.quantuvis.com for some consulting specifically designed for financial planning practices. You might want to call them, ask for Stephanie Bogan and tell her you got her name from me. I’v used their services before. I’m inmpressed. Best regards, Keith Schnelle, CFP,AIF.
Thanks Keith!