MINDY The name of the game is meeting people wherethey are. It’s about trusting the advisor, whether they’re anemployee with a contract that says that the firm owns theclients or an independent advisor who owns the clients.Regardless, it’s about the bond between advisor and client.Every firm attempting to recruit would do well to honor thatbond. That means they should respect that as long as an advisor is compliant — and has his or her clients’ best interests atheart — firms need to listen to what’s most important to theadvisor. Meet the advisor where he or she is. They’d be wiseto do so, and they’d win a whole lot more.
What else do you see in the future for non-wirehouses BDs?
LOUIS If you look at the non-wirehouse broker-dealers on
the employee side, all of them are experimenting with dif-
ferent models of affiliation. That’s pretty much true across
Stifel just announced they hired Alex David from Wells
Fargo’s independent unit. RBC has served as a custodian his-
torically [and has been growing its wealth business]. We know
about all the channels at Raymond James. Ameriprise has
multiple ways to affiliate. This is the way they’re changing and
expanding. They’re also improving their technology.
In addition, they’re drastically improving the quality oftheir advisor population, and hence their cultures are beingadvanced because of that. New advisors that firms likeRaymond James, RBC, Stifel, Ameriprise and Janney arerecruiting and productive. There are quality advisors comingon board because their business models have been validatedand become popular.
Strong sales of exchange-traded funds already have cut intomutual fund sales. This is a revenue disruptor for broker-dealers, since mutual funds have substantially higher revenue-sharing arrangements than ETFs.
The trend toward more ETFs and fewer mutual fundsappears unabated, so BDs’ mutual fund revenue is poised tokeep diminishing. Also, fee-based accounts have their ownissues in terms of expected revenue disruption going forward.
Reg BI brings the practice of charging a fee on an alternativeinvestment into question. These investments are illiquid, and anadvisor can’t make any sort of changes to the investment. Butthey charge a fee to manage the asset anyway, which makesabout as much sense as fees for “managing” fixed annuities.
Broker-dealers have their sacred profit centers, with advisory administrative fees being one of the largest and mostreliable sources of this income. As advisors experience feecompression, they’re discovering that one way to lower suchpressure is to bring down the amount clients pay in advisoryadministration fees and ticket charges.
For example, advisors paying a BD 30 basis points on client assets — to cover administration fees and ticket chargesfor an all-inclusive fee account — may find out that they cancustody these assets at Schwab or Fidelity and have no ticketcharges on ETFs and stocks. In addition, a growing numberof broker-dealers will do the administration (billing, performance reporting and rebalancing) with Orion, say, for roughly$100 per account each year.
The savings is shocking, as advisors can cut costs by up
to 95% — saving the client large sums. Ever since Charles
Schwab, TD Ameritrade and Fidelity went to no ticket charges,
we’ve been heavily focused on helping advisors who want to
lower advisory administration fees and face no ticket charges.
Because they impose ticket charges and higher administration fees, clearing firms likely will become less attractiveplaces to custody advisory assets in the future.
The administration fees have a net cost to the broker-dealer of around 3 basis points of assets, which are often markedup by the BD to 10 basis points or more. With fewer advisoryassets in brokerage accounts, another once reliable profitcenter for broker-dealers is set to diminish.
“The risks that come with being a financial professional and
an advisor are endless,” according to Brubaker-Rager. “The
biggest risks that keep me up at night include cyber, product
and market-event risks that result from the increasing popu-
lation of claimant attorneys, who actively solicit investors to
sue advisors and financial institutions with promises of recov-
ering market losses. The most significant, however … is the
risk of being a regulated FINRA member.”
While the time and financial resources necessary to interpret
FINRA rules are immense, it’s “never enough to avoid the end-
less regulatory requests that can span the course of two years,”
she explains. Because FINRA has devoted a great deal of time
and resources to a situation, it’s unlikely “they would be willing to
walk away with no action or simply a letter of caution,” she says.
For these reasons, many of the brightest, most seasonedcompliance and supervisory professionals, as well as FINRA-affiliated financial professionals, “will continue to migrate topurely investment advisory roles over the next few years,”Brubaker-Rager concludes. —Jon Henschen