In Search of Happily Ever After: The Quest for Professional Contentment with One’s Broker/Dealer

Having been affiliated with four broker/dealers over the past 22 years (two national wirehouses and two independents), the search for professional contentment is a subject on which I am reasonably well qualified to expound. By way of background information, none of my broker/dealer changes were precipitated by the lure of "up-front money," though there have been ample opportunities to do so. My first move was motivated out of geographic necessity to be with my wife who wanted to pursue a law career in her home town of Honolulu. The next two transfers were driven by a burning desire to escape what I perceived to be unnecessarily oppressive compliance regimes and by a zealous quest to find a firm where I could truly put my clients' interests first. In short, I wanted real entrepreneurial freedom.

It is no secret that life as a financial advisor in 2011 is as challenging and as stressful as it has ever been. Toiling under the burdens of industry consolidation and increased regulation, legions of advisors are left pining for long lost autonomy. For many, the concept independent thinking at their current b/ds is little more than a quaint fairytale. Such wistful longing begs the question of whether independence is still possible or if the notion of a truly advisor-friendly b/d should be relegated to the realm of the Tooth Fairy and the Easter Bunny.

Speaking from experience, I believe it is still possible to find freedom and independence in the b/d world. However, as I see it, there are three keys to achieving such a vocational nirvana. First, it is important to understand that independence at any firm does not mean you can do or say whatever you want, whenever you want, in any forum you want. We work in a highly regulated profession, and FINRA and the SEC have complex rules in place that are intended to protect the public from unscrupulous or inept firms and advisers. These agencies expect all b/ds and RIAs to uphold these rules to the fullest, and it is the job of the compliance department of each firm to make sure the b/d and its advisers toe this line. I have always fully appreciated the important role that compliance plays in keeping me from running afoul of the intricate regulatory web in which we operate. In my case, I was not seeking "no compliance," I was seeking "common sense compliance."

Second, one must understand that achieving professional freedom and independence does not necessarily mean finding the perfect b/d. Until Santa Claus sets up his own b/d (I understand he has a loyal hardworking staff and that he is a master of operational logistics and technology), there will be no perfect b/d, and there will always be aspects of one’s b/d that the FA believes can be improved. The third key – and the one over which the FA has the most control – is to have a clear understanding of what freedom means to you and to then find a firm with a culture and policies that match that definition. This assessment can be challenging because virtually all b/ds, from the national wirehouses down to the very smallest b/ds, proclaim that freedom and independence are benefits of signing on with them. On this score, I submit that there is a spectrum of definitions for “freedom” and that these definitions can be broadly categorized based upon the general classification and size of the b/d under consideration.

Wirehouse Freedom

At the brand name brokerages, the definition of independence often includes allowing advisers the privilege of setting their own hours (as long as certain production levels are met) and the freedom to advise one's clients as one sees fit within certain clearly defined parameters (e.g., required use of proprietary planning software, certain product limitations, restrictions on financial planning services, etc.). For FAs who take comfort in working in a structured environment and prefer a classical, hierarchical corporate culture, I believe it is entirely possible to feel figuratively “free” at a National Wirehouse. For me, the wirehouse definition of independence did not fit my more entrepreneurial nature. I was never comfortable with the notion that, no matter how independent they told me I was, at the end of the day, the firm considered me to be an employee and viewed my client book as their property. Further, the fact that most national brokerage firms reserve the right to terminate their "at will employees" at any time without cause and hold out the threat of legal action if an adviser attempts to transfer to a competing firm did little to enhance my sense of freedom and independence within the wirehouse confines.

Independent Broker/Dealer Freedom

While, as the category name suggests, the definition of "independence" is typically broader in the independent broker-dealer space, closer examination reveals that each b/d has its own unique culture and that perspectives on independence can vary markedly from one firm to the next. For instance, at some of the larger indy firms, independence may mean primarily that affiliated advisers receive higher payouts than their wirehouse counterparts in exchange for assuming the local overhead expenses (e.g., office and staffing). Beyond that, the culture at these firms may not feel much different from that of national and regional brokerages. Some of the larger firms are more proactive in trying to stay true to their small firm independent roots by continuing to allow their advisers a fair amount of entrepreneurial autonomy, but my general sense is that with large numbers of advisers, the firm's original risk management strategy, which was previously controlled effectively through selectivity and personal adviser contact, can no longer be maintained. As adviser counts rise into the hundreds or thousands, it becomes difficult, if not impossible, for Compliance to remain personal, and the large indy b/ds, despite their best intentions, cannot help but become more wirehouse-like in their policies.

On the opposite end of the spectrum, of course, are myriad tiny b/ds that offer advisers a wide, perhaps even dangerous, berth with respect to Compliance. I have no doubt that the level of freedom afforded at many small b/ds will match well with even the most liberal FA definitions. However, the euphoria of attaining such freedom may be short lived if, as numerous recent publicized examples have highlighted, the b/d one chooses should fail or be shut down by FINRA. Additionally, regardless of the level of entrepreneurial freedom that is afforded, some B-Ds may be simply too small to have the resources to support the transition and ongoing business of an established, successful advisor.

Goldilocks Freedom

As noted above, innate irreverence toward autocratic corporate bureaucracy and a zealous client-first belief system, led me to seek out an arguably extreme vision of independence. By my definition, independence meant gaining the right to brand my company and to build brand recognition through fostering productive relationships with the media. It meant having the intellectual freedom to write and publish professional papers and to write op-ed pieces—even on controversial industry issues. It meant gaining the freedom to advance my own investment philosophy and being free from conflicts of interest inherent in firms that promote their own proprietary products and services or that have related investment banking and/or commercial banking enterprises. It meant being able to speak frankly and candidly with my clients and to communicate with them through public events, email, and newsletters in a manner that allows my personality and professional style to come through. It meant being able to offer real, holistic customized financial planning guidance, and the freedom to choose the planning software tools that would enable me to further this objective. All of these are part and parcel of what real independence means to me, and, in a common sense compliance environment, these freedoms should be permissible.

What I needed was a Goldilocks b/d—one that was large enough to support a reasonably large and relatively complex financial planning practice, but still small enough to have a genuinely familial corporate culture, client-first ethics, and the aforementioned common sense approach to compliance. Fortunately, I am happy to report that even my lofty ideals of professional freedom are attainable. In contrast to popular belief, I am happy to report that there really are B-Ds where intellectual freedom and entrepreneurial spirit are not only allowed but encouraged. I now work in an environment where the Compliance Department is supportive and collaborative, and have been pleasantly surprised by how the elimination of Compliance negativity that prevailed at my previous b/ds has rejuvenated my enthusiasm and passion for this profession.

Thus, the central message of this piece is that happily-ever-after is still possible in our industry. However, if you are seriously considering a change, a strong word of caution is in order. The process of changing firms is unavoidably labor intensive and stressful, and should not be sugar-coated. If you decide to embark on a quest for a new broker-dealer relationship, the best advice I can offer is to carefully consider what independence means to you. Once you understand what is important to you, you should then spend a great deal of time getting to know the Compliance Departments at each prospective firm, as it is that department more than any other that will determine whether the firm’s culture matches our own freedom quotient. Of course, the search for the right fit is made more daunting by the fact that you never really know whether the firm you choose will treat you with the same respect after you become a client as it did when courting you as a prospect. On this score, I can't help you except to suggest that you do your homework. Best wishes on writing your own fairytale ending!

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