Advisor/ Broker Reputation

or Register to post new content in the forum

24 RepliesJump to last post

 

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Apr 29, 2007 11:38 pm

My best friend is a lawyer at a prestigious law firm in town. So are several of my clients. I have other friends that are doctors. A few PhDs. We all went to the same top 50 US university.


How come we dont catch a break in terms of reputation versus these other professions?...these days to be an advisor the path is quite difficult with lots of exams and continuing education...like private practice lawyers and doctors we also have to do alot to grow our own practices...


I'm just interested to see what folks opinion is on why the words "i'm a financial advisor" puts a grimace on the face of 60% + of the people who you tell that to (as in "oh my god, what is he/she going to say next...he/she obviously wants my money")...


My take is that this lack of reputation is largely due to:


-Brokers exploits in the 80's and early to mid 90's


- The continued use of the word "commission" as opposed to fees...hedge funds and mutual funds don't refer to their take as "comissions" even though their "annual expenses" really are the same thing since its a consistent % of assets rather than a flat $$ amount or directly tied to any "paper expenses"...our pay, whether upfront or over time is still to cover our own personal "operating expenses"


- Some firms/ policies that do not allow advisors to freely choose the best products for their clients (i.e. "captive brokers")


- And related to that last point, cut-throat competition within the industry where we each label our neighbor as a scam artisit and mass publicize it in effort to win business away from each other (the biggest examples being vanguard/ fidelity "anti-broker" commercials, and motleyfool "anti-broker/ DIY" spams...you would rarely if ever hear one heart surgeon calling another heart surgeon a crook in the public space even if it was a valid point)...


And my last word...we advisors MUST band together and stop publicly deriding each other as this plays right into the hands of the divide and conquer technique of the Vanguard/ Fidelity/ DIY shops...if we would channel that same energy into publicly rebutting the massive amount of negative media on us (just do a google search for "how to choose a financial advisor" and see how overwhelming the message of DIY shops is in play) rather than bickering at each other on these message boards we might be able to ensure our survival into the next few decades (just ask any 20 to 30 year old today and they will likely tell you that they think the "professional financial advisor" is a dying breed relative to the free info online and the cookie-cutter recipes provided by DIY shops...heck...if i weren't in this industry i'd probably be using fidelity based on the popularity of the myths and half-truths they propogate...just imagine then where your last prospect is verifying info on "advisors" and on your last recommendation, and what that info is saying)...


Financial Advisors of the world unite!


- We passed tough exams and still have continued study...


- We are responsible for profit and loss of our practices


- We are arguably the most heavily regulated industry in existence


We deserve some respect


I'll take responses off the air...

Apr 30, 2007 9:56 am

I don't suppose it'll ever be much different.  There is tons of info out there about lots of things you can do it yourself (FSBO in real estate).  Yet, there are still real estate agents.


Asset allocation funds abound (I use them myself), yet I've never lost an account to a Fidelity call center.


The key is providing exceptional service (returning calls, calling them, making sure things happen on time, etc) and caring.


Do those two things, and you'll never run out of clients.

Apr 30, 2007 10:49 am

Rock on DC!    

Apr 30, 2007 10:59 am

At least brokers don't charge $175 for a secretary to put a label on a client file, like lawyers do.

Apr 30, 2007 11:32 am

" The continued use of the word "commission" as opposed to fees...hedge funds and mutual funds don't refer to their take as "comissions" even though their "annual expenses" really are the same thing since its a consistent % of assets rather than a flat $$ amount or directly tied to any "paper expenses"...our pay, whether upfront or over time is still to cover our own personal "operating expenses"


I don't mean to pick, and I agree that in many (most) cases, people judge our profession as a bunch of crooks, even if their guy is seen as a Godsend.


As to the cost issue. The problem seems to arise in that we expect our clients to put their own money at risk. This is different from the lawyer thing (where he takes 1/3 of winnings) which would bother people a whole lot more if they weren't getting money coming in from "nothing". If a lawyer settles a legitimate PI lawsuit (yes, there are many of them) and the vic gets 2/3's of the dough, that's still a whole lot more than he was going to get in the first place (usually) from the perp. (I could have used plaintiff and defendent, but it's too late now).


OTOH, if someone needs the lawyer to keep they bunghole out the slammer, the dictim (please! don't use that word!) You Get What You Pay For, comes into play, and they'll pay what it costs, and not shop for low price representation. (It's the "fear" side of the greed and fear ratio.) Not to mention, nobody is making lawyer jokes when they NEED a lawyer! (The old jokes go, "What is a Republican? A Democrat who has been mugged! What's a Democrat? A Republican who has been arrested.")


The biggest hurdle to RR's being seen as profssional is the way RRs talk about each other. When every other broker is willing to bad mouth every other one, it's hard for everyone not to have mud all over them.


Apr 30, 2007 12:55 pm

DC, you have received some valuable advice and insights posted here .


Consider filtering it all through the last paragraph contributed by the registered representative broker dealer lawyer.


In addition to the reasons listed throughout all the threads, I believe most practicing advisors are victimized by our history and industry structure. The centralized power of some of the large, public broker dealers and insurance company comes in part from the fact that Wall Street used to have only a narrow gate.


The good news is that the industry is changing very rapidly. Competition will continue to elevate the profession.


For example, most of the " cold calling " and much of the " cold cocking" is done by " trainees ". Who runs the relatively unprofessional training cash machine that helps damage our professional reputation?


Not the independent broker dealers like LPL, or independent RIAs, for example. You can find great advisors everyone, it is ironic that a good broker at Merrill is subsidizing the rather schmucky practice of cold calling ( correct me if Merrill has outlawed cold calling).


And what we are really talking about is a machine that feeds corporate fat, at the expense of our reputation. In other words, if all of the independent RIAs, or LPL affiliates, or even established Merrill brokers would take on their own apprentices and service the heck out of what they have, there would be more growth by referral from happy clients, like other professionals.


Fortunately, we don't have to worry, because this is happening at lightening speed, driven by market forces.


And if you really want to understand this professsion, and industry, just study the growth of the broker dealer LPL. That outfit, with its very efficient and high payouts to advisors, along with not being a product manufacturer, but being centered on the registered representative, focus on technology and yes, profitability for itself, but not hiring kids to go out and push its own products, rather, enableing established professionals ( who deliever real value to their clients) - this is the future of our profession, and it is bright.


And there are many, many good broker dealers and non broker dealer platforms, but the best situations start with experienced and knowledgeable advisors sitting down with potential clients. And the next generation of advisors will need to learn from them, not by " surviving" an exploitative training system that damages our collective reputation.

Apr 30, 2007 1:01 pm
joecamelguy:

And what we are really talking about is a machine that feeds corporate fat, at the expense of our reputation. In other words, if all of the independent RIAs, or LPL affiliates, or even established Merrill brokers would take on their own apprentices and service the heck out of what they have, there would be more growth by referral from happy clients, like other professionals.



EXACTLY!!

Apr 30, 2007 2:45 pm

So here are some potential action items for us here:


1. Don't diss each other. The market is already compressing the " margin " paid on financial products. If I represent twenty insurance companies, or a certain wrap fee or load structure, I am no better than you than me. As long as there is choice for the client, and fair competition, the market will level the fees to the client.


2. Make a commitment to improve our reputation. Why? More money for you, more satisfaction with your career, and a better deal for clients. If you want to get sentimental about it, a whole generation of baby boomers need our help. This will involve the engagement of important professional attributes like trust, knowledge, and experience. And it will involve all kinds investment vehicles, but also concepts like risk transfer (insurance), counseling and most of all consistency.


3. Focus on what is important. The single lever to focus on is -- payout percentage to the registered representative. If you do not recognize this fact or believe it, you are kidding yourself. Why? 


As business owners, this is how we keep score. Payout rate is the measure of efficiency of any broker dealer. It can be reduced in order to provide certain services, or even branding. Question: if your payout rate is low, how do you feel about using your clients money - and your earnings - to subsidize corporate waste? Do you think that management bonuses of hundreds of thousands and millions - or corporate salaries that subsidize inefficient products or products that strive to take advantage of new forms of leverage? What if this subsidy damages our reputation as professionals? Why should you help subsidize trainees that cold call and sell without professional competency - when you could be reinvesting the money and hiring in your own business.


4. Be open minded, and open your eyes to reality. Whether you agree with my basic arguement or not, no one can deny the sea change in our industry. And we don't need to worry, the market forces will change the structure of our profession in powerful ways.


5. Do recognize our power here. As long as we take the bait ( fight each other what is not important) and smoke a little opium ( take the assigned accounts and scraps from the trainee blowouts that were subsidize with our money) - the river of change will be a slow muddy current instead of pristine rushing whitewater. The forum is important, and what we say here matters. If we try to keep Ego out of it, we could be richer and have more fun. We must trust ourselves first.

Apr 30, 2007 3:31 pm

Okay, I have made some pretty serious claims here, so I am wondering if anyone would be interesting in making a little list.


In terms of platforms for doing business as a financial advisor, which platforms do the most damage to our repuation as a professional body?


How would you order these in terms of advisor behavior and with regard to public perception?


Registered Investment Advisor


Wire House RR


Captive Insurance Company Agent


Independent Broker RR


Fee only Financial Planner



Is there any correlation between the payout rate to the rep and general - not absolute - favorable public perception?


And, here is the really good new, the payout % between RIA and Independent b/d affiliate is now quite narrow.


A lot of clients need a rep who is affiliated with a b/d.


The debate is not about b/d vs. RIA, and there are no bad products, only bad advisors (everywhere), and good advisors (everywhere), and good and bad payout rates, and TOO MUCH CORPORATE FAT that is what really continues to damage our profession, because it has outlive its economic usefulness, and it refuses to die.


And, if you don't believe this, just look at the current strategy at wirehouses: invent new products for the super rich, and just serve them ( great, go for it ). That has nothing to do with most of us here, and our reputation as professionals.


Do yourself a favor, and think all of this through, and make the necessary changes to align yourself with our professional reality.

Apr 30, 2007 3:51 pm

"A lot of clients need a rep who is affiliated with a b/d."


Why?

Apr 30, 2007 4:02 pm
EDJ to RIA:

"A lot of clients need a rep who is affiliated with a b/d."


Why?



Mainly, because it is the structure we have until things evolve.

Apr 30, 2007 4:25 pm
joecamelguy:

Okay, I have made some pretty serious claims here, so I am wondering if anyone would be interesting in making a little list.


In terms of platforms for doing business as a financial advisor,
which platforms do the most damage to our repuation as a professional
body?


Annuities by a mile, followed by VUL. Then closed end fund IPOs, Then come A-shares, and the misc churning.




How would you order these in terms of advisor behavior and with regard to public perception?

Registered Investment Advisor


Wire House RR


Captive Insurance Company Agent


Independent Broker RR


Fee only Financial Planner


It's not clear that the public can distinguish between these. But I'd say the Insurance Agent is below all the rest.

Is there any correlation between the payout rate to the rep and general - not absolute - favorable public perception?


Maybe, becuse high payout folks
are less pressured to produce and sell high comission products. I.e
thus the association between bank brokers and annuities.

And, here is the really good new, the payout % between RIA and
Independent b/d affiliate is now quite narrow.TOO MUCH CORPORATE FAT
that is what really continues to damage our profession, because it has
outlive its economic usefulness, and it refuses to die.


The classic B/D model exists
because it is very profitable, even if it doesn't product the optimal
outcome for brokers or customers. Thus we have EDJ/AMP with preferred
fund families and various B/D scandals in the 1990s/2000s.

Apr 30, 2007 4:38 pm

Allreit, points taken.


I think the implications of what you are saying are reasonable.


Change is indeed happening in spurts.


Efficient b/ds in fact put more pressure on the products.


The fact of commissions is two sided in that it does give clients choice. You may say that choice is bad and I say, I see your point, why not just do away with the whole b/d thing.


In fact, for a lot of us, doing away with ( an efficient ) b/d would threaten our immediate survival, for a lot of reasons, not all of which are diabolical reasons.


Apr 30, 2007 4:43 pm

Worst to our rep?


Why did you leave off Boiler Room Penny stock brokers?


How about schlock Bond Houses ?


How about Commodity Futures radio ads?


How about Money Magazine?


Let's not forget CNBC and all the talking head shows where the "expert" gives out ideas and then doesn't have to deal with the mess afterwards!


How about all those discount broker ads that appeal to the lowest common denominator?


And how about the basic reality that the stock market is a dangerous place where people can and do lose money. From there you will need to go against basic human nature to find people who won't just rationalize that it wasn't their fault that they lost money, it was the fault of the broker!


Some things you can do something about and everything else you can't.


You can do something about how people perceive YOU! Personally, when people ask what I do I tell them I'm a Stock Broker and I let the chips fall where they may. Fact is, so many people are afraid to call themselves a Stock Broker, and so many are afraid to be one, that it has become an unusual title. The fact that I'm proud of what I do, and that I'm damned good at it translates.


You want to be ashamed of what you do and who you are, you'll show that by trying to invent some cool new name for "Middleman". First thing the client thinks is "I thought they did away with the middleman!"

Apr 30, 2007 4:49 pm

I know your brain can do better  .


With regard to the very personal business of sitting with folks and provide specific advice and services, which something like 80% of people really want - now that is a narrow and defined professional group with a definite reputation.


Okay, I do think the whole b/d is an outdated racket, but I am suggesting that a good first step would be to dump all of the suits at home office ( unless, for example, the payout is about 90% +).


Anyway, what I propose is an action step for SOME of us.


Shame on you for muddling the issue  by talking about shame and middlemen. You sound like a good old boy wire house guy.

Apr 30, 2007 5:06 pm

And by the way, Allreit, I know this is an old debate, BUT:


If you take two guy's books, one RIA and the other at independent b/d with a high payout, and you sit down with some real clients, and educate them, you and I know that the potential for abuse exists everywhere.


With regard to the commissions ( versus you being commissioned), I think the competition of representing twenty or thirty insurance companies - can cut costs on the product side, and the rep can be fairly paid.


So these fee based accounts you have, vs. my fee based accounts, with me offering a choice of insurance and so on, well, maybe you simply can't live with me as a financial professional in your community.


But if we CAN agree to try to take some steps to improve the reputation of our profession, lets get the suits who keep coming up with the sales contests, and hiring the kids without mentoring and who will blow out and leave a residue at low payout and share the spoils - lets take some practical action steps, verus demanding all or nothing. Pragmatism would be a good start.

Apr 30, 2007 5:19 pm

Well I didn't really want to come out and say that your "false choice" question is dumb, so I took a more circuitous route.


Asking a question like yours in a place like this is like going into a bar and saying "I don't care what all these guys say, you wife gives a lousy ..."


It's a barroom brawler's question and it really should be ignored.


Be sure that this is what I'll be doing hence forward.

Apr 30, 2007 5:31 pm

All my clients respect me. So I think this depends on the professional.

Apr 30, 2007 6:13 pm
joecamelguy:

Allreit, points taken.


I think the implications of what you are saying are reasonable.


Change is indeed happening in spurts.


Efficient b/ds in fact put more pressure on the products.

The future IMHO is wrap accounts of ETF's or else "Global Macro"
management of indexes. Active management will be found mostly in
small/mid/x-US/high yeild, and in various enhanced strategies (i.e
dividend capture and option selling)



[quote]The fact of commissions is two sided in that it does give
clients choice. You may say that choice is bad and I say, I see
your point, why not just do away with the whole b/d thing.[/quote]


I say choice is bad, because the alternate choice is a bad one.


It's like a table saw that I own with a removable blade guard. There is a choice available, but it is a bad choice in almost all cases..




In the right circumstances commisions can be cheaper. Mostly in cases
involving precise bond portfolio's that are ment to defease
deterministic liabilities.But those rare cases usually involve
buy-and-hold investors who don't generate enough trailing GDC for
brokers to be interested.


Bondguy's counter example was the very rich old lady who constantly
bought nothing but the longest muni bonds available. That's pretty
rare.


In fact, for a lot of us, doing away with ( an efficient )
b/d would threaten our immediate survival, for a lot of reasons, not
all of which are diabolical reasons.  





A good indy broker with earned ownership of his clients is going to be a tough nut for anyone else who comes along.



A hustling wirebroker with no time to service clients is going to be low hanging fruit. In fact because the wirerep has done the heavy lifting, these are the best people to prospect.



My $0.02

Apr 30, 2007 6:25 pm
joecamelguy:

With regard to the commissions ( versus you being commissioned), I
think the competition of representing twenty or thirty insurance
companies - can cut costs on the product side, and the rep

can be fairly paid.

It could also lead to higher comissions since, more money must be spent on marketing and "compensation" to the salesforce.


Insurance and annuities are usually sold not bought.


IMHO the big enemy is people reading books like M*'s or Bogle's
guide to investing and deciding to do it alone in a fidelity/discount
account.


TD Ameritrade has filed for target date ETF's that will be managed
by Zack's. To me that is scary, but thankfully most people will be too
weak to use them.




[quote]So these fee based accounts you have, vs. my fee based accounts,
with me offering a choice of insurance and so on, well, maybe you
simply can't live with me as a financial professional in your community.


[/quote]


That is a big weakness. My friendly local metlife rep loves me.


As for fee vs fee accounts. My accounts are typically a standardised
ETF portfolio + Bond ETF(s) + a focus list of REITs etc. For some
clients I make up an etf portfolio that is more skewed to dividends.


I also run a few 100% stock accounts where I do all the stock picking.


Once you quit the commisioned model, the main difference is RIA's
have a legal duty to clients while RR/s have a pragmatic duty to
clients.


With ethical advisors this going to appear as six of one half dozen of the other.


[QUOTE]But if we CAN agree to try to take some steps to improve the
reputation of our profession, lets get the suits who keep coming up
with the sales contests, and hiring the kids without mentoring and who
will blow out and leave a residue at low payout and share the spoils -
lets take some practical action steps, verus demanding all or nothing.
Pragmatism would be a good start.

[/quote]



I'm all infavor of the indy's/RIA's destroying the wirehouses. This is
the long term trend. Any wire broker can make more as an indy, and
anyone with some skills and pragmatism can do more as an RIA/Indy.



It's a myth that the Wirehouses have brands that deeply resonate with the public.