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.

Rock on DC!    

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

" 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.

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.

[quote=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.

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.

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.

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

Why?

[quote=EDJ to RIA]

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

Why?

[/quote]

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

[quote=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.

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.

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!"

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.

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.

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.

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

[quote=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.

[QUOTE]

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.

[/quote]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.  

[quote=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.[/quote]

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.