Street Level

Something Rotten?

Everyone is talking about individually managed accounts, including us. In almost every issue, we track this next big thing in brokerage. And, generally, we've been under the impression that IMAs are a good thing. Why? The process of matching clients with managers is similar to the process used by institutions to choose the appropriate asset classes and individual investments. The process, we reckon, transforms the retail broker into the type of sophisticated financial consultant that serves the institutional world.

But then contributor Larry Chambers — a former broker who worked at E.F. Hutton when the IMA idea was hatched — started looking deeper. For all the talk, it turns out, just 5 percent of brokers are responsible for nearly all the assets that the wirehouses have in these programs.

Why? In addition to the investment in training and the loss of income during the transition, it seems brokers have another reason to hesitate: They smell a rat. They have a fear that if they go the IMA route, they will lose their grip on clients. When all the assets have been gathered and placed into managed accounts, brokers worry that they will be reduced to client service reps — overpaid client service reps. Please turn to page 30 for Larry's piece.

It's not just individual brokers who are trying to morph into wealth managers. Financial services institutions are, too. Take Quick & Reilly, now a unit of FleetBoston Financial. The discounter is being remade to deliver an entire suite of financial products, from mortgages to managed accounts. Like individual brokers, Quick has had a tough time crossing over. For more, turn to page 47.

I promised myself I was not going to mention the word Enron. But I can't help it. The Enron debacle has politicians in Washington trying to introduce legislation to limit the amount of company stock that can be invested in a 401(k) plan. Jon Corzine, the former Goldman Sachs head who spent $60 million to get himself elected to Congress, is trying to cap it at 20 percent. Of course, financial professionals know all about the principle of diversification. But a match with company stock is better than no match at all, right? According to the Employee Benefit Research Institute, only 2,000 of the 340,000 companies that offer 401(k) plans match employee contributions with stock. The majority offer cash. So, where's the problem? It's up to you, the financial advisor and your client to create a prudent financial plan, not Washington. And, it turns out, according to The Wall Street Journal, Corzine had more than 20 percent of his wealth tied up in one holding (Goldman Sachs).

So, you may be asking, who is that guy on our cover? That's Brian Knowles, Registered Rep.'s New England advertising manager. Brian began his modeling career last month in the Street Legal column, where he did an excellent rendition of a broker in a panic. This month he's probing new depths with a dual portrayal of a broker who morphs from a harried commission chaser to a suave investment advisor. Tune in next month, as Brian graces our centerfold. Well, tune in anyway. Please.

Comments? Drop us a line at 249 W. 17th St., New York, N.Y. 10011-5300. Or email us, [email protected] or (212) 462-3591. Publisher Rich Santos can be found at [email protected] or (212) 462-3586.

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