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The Carlyle Group gets a bigger testing paw into RIA waters

The giant private equity firm is putting capital toward an aggressive expansion of the $4 billion Avalon Advisors

Author Brooke Southall August 30, 2011 at 3:39 PM
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Erika Cramer: Carlyle met their criteria in every aspect.



August 30, 2011 — 5:52 PM

This is a landmark deal that I think will be the tipping point that encourages other $4 billion+ RIAs to partner with Private Equity funds. TPG and Hellman & Friedman have been successful investing in the independent B/D LPL – seems like the same investment proposition would hold for indpendent RIAs.

Stephen Winks

Stephen Winks

August 30, 2011 — 9:26 PM

The brokerage industry has and is fighting fiduciary standing for brokers to alleviate any and all responsibility and accountability for broker recommendations. In the absence of the brokerage industry providing large scale institutionalized support for fiduciary standing which makes advice safe, scalable easy to execute and manage as a business enterprise, the door has been left wide open for advisers who are acting in their client’s best interest. This is why advisor business could not be better. By the well capitalized Carlyle Group entering the retail and institutional advisory business, it shifts the balance of power within the industry.

Here-to-fore brokers have had no choice, as their services are limited by the services their broker/dealer supports/provides. The consumer clearily prefers their advisor to act on their behalf in the consumer’s best interest. Thus the balance of power shifts from broker/dealers that will not acknowledge ongoing accountability for recommendations or the broker’s fiduciary duty to act in the consumer’s best interest to a new alternative where advisers are robustly supported to act on behalf of the consumer, in the consumer’s best interest with the ability (statutory audit path and expert opinion letter) to definitively prove it.

Rather than the brokerage industry responsibly providing the necessary prudent processes, technology, work flow management, conflict of interest management and expert advisory services support necessary to make advice and fiduciary standing scalable, safe and easy to execute and manage— Carlyle can easily establish a faster, better, cheaper and far more profitable advisory services business model than commission sales which commands just a third of the multiple that advisory services can command.

Wall Street, now has to play catch up to rules not of its choosing in support of fiduciary standing. Never in the history of man has the best interest of the consumer not prevailed in a free market.
If the brokerage industry continues to be insular to the best interest of the consumer, the business garnered by properly resourced advisers in the consumer’s best interest will be massive. Brokers and consumers would have a safe and reliable alternative.

The Carlyle Group will reap massive profits in making this case but only if Avalon proves adept in building large scale institutional support for fiduciary standing. We all have been through this before. Promise does not translate into executable fact. Our top brokers and advisors with personally billions under advisement are no longer taking the word of b/ds, custodians and roll-up firms as to their business accumen in support of fiduciary standing—which has not proven to be good. Only demonstrable expert technical capability for each of the ten major market segments advisers serve will prevail in the marketplace. Carlyle has a great idea in acquiring Avalon, that does not mean the potential can be achieved. What ever Carlyle spent in acquiring Avalon, a sizable sum will be required to build the prudent processes, technology, work flow management, conflict management and expert advisory services support to preempt the outdated brokerage support of advisory services which treats advice as a product which is sold rather than a prudent process that is managed. Carlyle has acquired an idea, Avalon must develop the necessary supporting infrastructure. Thus, as always, the devil is in the details.

Not-with-standing raw sales ability which is not transferable, does Avalon have the ability to execute? Time will tell.


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