Who comes first?

or Register to post new content in the forum

35 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.
Jan 30, 2007 7:21 pm

Who comes first, when making investment decisions: client or firm? 


How would a wirehouse firm react to an FA always putting a client first over the needs of the firm?

Jan 30, 2007 8:38 pm

The client always comes first  when making investment decisions. To the extent that this is a profession. Professions are characterized by the application of specialized knowlege. Components are experience, ethics, and education.


Put it this way, the firm is looking for certain results. The moral dilemma, in terms of who get put first, is always yours, since you are a professional.


There are plenty of conflicts of interest. Figuring it all out is a big challenge. But it always comes down to you, your clients, your ethics. For the unethical advisor, the world can be a lonely place. How quickly the illusion of being part of a big fuzzy group is stripped away when a client registers a legitimate complaint.


Firms are corporations. Corporations can deliver things like organization, economies of scale, but never real human attributes like ethics - other than policies, which are often perceived as unfair or unfavorable by the public.


For example, if you focus on selling permanent life insurance, you will be paid a nice up front commission, and the client will endure a potential surrender charge.


From your point of view and the company, you invested time and energy into a long term commitment. From some analytical client's point of view, you sold them an expensive investment vehicle. Who is really right depends on (your) perception of suitability.


If you always put the interest of the client first, the worst thing that could happen is, you won't meet your quotas, and you'll be fired. Someone else will take over the fruits of your labor. The best thing that could happen is, you always put the interest of the client first, and you'll become a real personal financial professional who sleeps well at night. So when you get started in this career, choose your training firm and setting wisely.

Jan 30, 2007 8:51 pm
planrcoach:

The client always comes first  when making investment decisions. To the extent that this is a profession. Professions are characterized by the application of specialized knowlege. Components are experience, ethics, and education.


Put it this way, the firm is looking for certain results. The moral dilemma, in terms of who get put first, is always yours, since you are a professional.


There are plenty of conflicts of interest. Figuring it all out is a big challenge. But it always comes down to you, your clients, your ethics. For the unethical advisor, the world can be a lonely place. How quickly the illusion of being part of a big fuzzy group is stripped away when a client registers a legitimate complaint.


Firms are corporations. Corporations can deliver things like organization, economies of scale, but never real human attributes like ethics - other than policies, which are often perceived as unfair or unfavorable by the public.


For example, if you focus on selling permanent life insurance, you will be paid a nice up front commission, and the client will endure a potential surrender charge.


From your point of view and the company, you invested time and energy into a long term commitment. From some analytical client's point of view, you sold them an expensive investment vehicle. Who is really right depends on (your) perception of suitability.


If you always put the interest of the client first, the worst thing that could happen is, you won't meet your quotas, and you'll be fired. Someone else will take over the fruits of your labor. The best thing that could happen is, you always put the interest of the client first, and you'll become a real personal financial professional who sleeps well at night. So when you get started in this career, choose your training firm and setting wisely.




I'll second that!


Most eloquently stated, Planrcoach!  Well said!

Jan 30, 2007 9:26 pm

Too kind.

Jan 30, 2007 10:45 pm

Planrcoach, 


Thank you for your insightful response.


matchbox

Jan 31, 2007 3:15 am
matchbox:

Who comes first, when making investment decisions: client or firm? 


How would a wirehouse firm react to an FA always putting a client first over the needs of the firm?





Now you understand why RIA's will conquer the world.

Jan 31, 2007 9:18 am

Client, give me a break.  Compliance will kill you otherwise.


Are you being asked to push something?  Details please.

Jan 31, 2007 10:01 am
matchbox:

Who comes first, when making investment decisions: client or firm? 


How would a wirehouse firm react to an FA always putting a client first over the needs of the firm?




Perhaps you could explain that further. For example "the needs of the client first" may mean to some people that you work (and thereby the firm) work for free. To others it may mean that your wirehouse example is somehow forcing you to use inappropriate investment vehicles. Can give us an example of a conflict of interest that is at a wirehouse that you wouldn't find in every channel, including RIAs?

Jan 31, 2007 10:06 am
planrcoach:

If you always put the interest of the client first, the worst thing that could happen is, you won't meet your quotas, and you'll be fired.


I'd take issue with the word "quota", but that aside, you wouldn't fail to be a reasonable producer because you insist on "doing the right thing" by your client, you'd fail to be a reasonable producer because you weren't doing "the right thing" with enough clients.


IOW, the people who feel "pressure" to do the wrong thing to create production are in that position because they haven't succeeded in opening accounts, gaining clients and gathering assets.

Jan 31, 2007 11:04 am
mikebutler222:
planrcoach:

If you always put the interest of the client first, the worst thing that could happen is, you won't meet your quotas, and you'll be fired.


I'd take issue with the word "quota", but that aside, you wouldn't fail to be a reasonable producer because you insist on "doing the right thing" by your client, you'd fail to be a reasonable producer because you weren't doing "the right thing" with enough clients.


IOW, the people who feel "pressure" to do the wrong thing to create production are in that position because they haven't succeeded in opening accounts, gaining clients and gathering assets.



I would second that!


But the best thing you can do is stay away from the wirehouses as client and as a producer!    

Jan 31, 2007 11:46 am

I'd take issue with the word "quota",  ...


Thanks, noted, I agree, and I like the focus on, "doing the right thing with enough clients".


But the best thing you can do is stay away from the wirehouses as client and as a producer!    


Not really. Since ethics resides with the individual producer, affiliation is secondary.

Jan 31, 2007 11:47 am
Greenbacks:

But the best thing you can do is stay away from the wirehouses as client and as a producer!    




Jan 31, 2007 12:05 pm
planrcoach:

I'd take issue with the word "quota",  ...


Thanks, noted, I agree, and I like the focus on, "doing the right thing with enough clients".


But the best thing you can do is stay away from the wirehouses as client and as a producer!    


Not really. Since ethics resides with the individual producer, affiliation is secondary.



WELL SAID.

Jan 31, 2007 5:07 pm

It is true that some people interpret "best interest of the client" to be free service, no commissions, whatever.  The best interest of the client is sometimes a matter of interpretation.  Some people feel that the only way it is in the best interest of the client is to be fee-only.  Some feel it means an A-share at a good breakpoint and let it ride, some people think it's a 1% wrap because it somehow avoids conflict of interest.  I think as long as you follow the code of ethics, and do what you REALLY feel is right for the client (which does not mean "free"), then it's not a bad decision.  But at minimum, you need to explain the various options and how you get paid on them.  The client needs to know what they are buying and what they are paying.

Jan 31, 2007 5:28 pm

Well put. By the time you clearly explain all of the options, the client looks at you and says, "What should I do?".


 I have never had a problem with anything except (at this point, other planner's inherited clients) deferred sales charges and surrender charges. These really seem to grate on the public. Penalties don't fly when they happen.


"Free" services - it is in the client's best interest to have the advisor remain engaged in business.

Jan 31, 2007 5:45 pm

It really comes down to the firm putting the rep in tough spot and the client in a vulnerable position. 


Does the rep keep his job by selling a high commision product or get fired for lack of production?


If the firm really cared about the rep or the client they would not put either one in this position!  


Stay out of the wirehouses they give all of us a bad reputation.  

Jan 31, 2007 6:37 pm
Greenbacks:

It really comes down to the firm putting the rep in tough spot and the client in a vulnerable position. 


Does the rep keep his job by selling a high commision product or get fired for lack of production?


If the firm really cared about the rep or the client they would not put either one in this position!  


Stay out of the wirehouses they give all of us a bad reputation.  




That’s ridiculous.

Jan 31, 2007 8:08 pm
Greenbacks:

It really comes down to the firm putting the rep in tough spot and the client in a vulnerable position. 


Does the rep keep his job by selling a high commision product or get fired for lack of production?


If the firm really cared about the rep or the client they would not put either one in this position!  


Stay out of the wirehouses they give all of us a bad reputation.  



The tension that you describe is very real, but it is economic. It must always be managed at the individual level, because firms will always tilt toward profit maximization, etc. The only hope for external control is regulation, education, choice, so on.


Regulation certain seems to have made some recent strides. I can see a scenario where some of the RIAs are cracked upon next - it may be partly necessary and partly political.


Reps may comprimise their own integrity to keep their jobs, but that would likely occur in many industries. Think of all the money all of us left on the table for integrity. Others here may have picked some of that money up - but it seems largely a thoughtful and conscientious bunch here. We can influence the profession.

Feb 1, 2007 1:38 am
planrcoach:

Regulation certain seems to have made some recent
strides. I can see a scenario where some of the RIAs are cracked upon
next - it may be partly necessary and partly political.


RIA's won't face any crackdown since we start from a position of
working for the best interests of the client at all times, vs working
for the best interests of the firm at all times.


Don't forget the Merrill Lynch rule, RR's are just fancy order
taker's, any financial advice is "purely incidental." That's not how
you sell yourself to clients, but it is what they will say the firms
legal ass is on the line. All they care about is an absense of gross
malfeasance (the suitability test), not the best interests of the
client.


Feb 1, 2007 8:37 am
AllREIT:
planrcoach:

Regulation certain seems to have made some recent strides. I can see a scenario where some of the RIAs are cracked upon next - it may be partly necessary and partly political.


RIA's won't face any crackdown since we start from a position of working for the best interests of the client at all times, vs working for the best interests of the firm at all times.


Is that so? Doesn't that depend on how "best interests" is defined? Do you work for free? Do you simply give your clients a "how-to" book so they can do it on their own? Have you ever said to a client "Buy the Vanguard 500, re-invest the dividends and don't hire me"? Have you ever said "You know, there are plenty of RIAs that outperformed my shop over the past few years, and since you can't employ their better services here with me, you should fire me"? Ever see an RIA close its doors because they’ve come to the conclusion that while they’re profitable for themselves, other RIAs habitually provide their clients with better returns at a better price? How about an RIA that's ever said to a client "You know Bob, you have too much of your net worth here with us and our (fill in the blank; global growth, short term muni, large cap value) investment style and you should move some to the (again, fill in blank) RIA down the street that specializes in another area"?



AllREIT:

Don't forget the Merrill Lynch rule, RR's are just fancy order taker's, any financial advice is "purely incidental." That's not how you sell yourself to clients, but it is what they will say the firms legal ass is on the line. All they care about is an absense of gross malfeasance (the suitability test), not the best interests of the client.



If you understand the business and the regulatory structure you know that "purely incidental" is a vestige of the difference in governing laws. The notion that one channel in this business is more concerned with a client’s well being or has an advantage in the arena of ethical behavior is just silly.