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What led to Advizent's end and why Steve Lockshin is unfazed, even energized

The RIA business -- including custodians, asset managers and advisory firms -- lived up to its reputation of resisting cooperation

Wednesday, May 15, 2013 – 11:00 PM by Steve Garmhausen
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Steve Lockshin: I think we were surprised at the resistance from the entire industry.

It shot across the RIA sky like a comet during the latter half of 2012.

But it wasn’t meant to burn brightly and then fall to earth.

The idea of Advizent was to take all the biggest, best RIAs, create a beyond-the-requirements fiduciary and service standard and put it all under one brand — and then market and advertise the bejesus out of it. The icing on the cake was that two of the hotter talents in the business — Steve Lockshin (Fortigent, Convergent founder) and Charles Goldman (ex-head of Schwab and Fidelity RIA units) — were putting themselves and their capital into the effort. See: Steve Lockshin and Charles Goldman begin to unveil Advizent, a venture that could put thousands of RIAs under a single cooperative.

Like any venture that fails to reach going-concern status, there are no neat-package answers for what exactly didn’t click. Still, we can’t help but ask. In this interview, Steve Garmhausen, one of advisory journalism’s best interviewers, asks tough questions of Steve Lockshin — an effusive interviewee — about what happened and where it leaves Lockshin’s life, career and sense of mission in this business. Without giving too much away, Lockshin seems to appreciate the lessons learned through the Advizent process, laying the groundwork for an interesting sequel or two. See: Advizent will close its doors after a final flurry of negotiations.

Steve Garmhausen: Were Advizent’s ambitions, putting thousands of advisors under a cooperative, too big?

Steve Lockshin: The initial goal was not thousands of advisors. We would have been very happy if we had 500 to 1,000 within a couple of years. The goal was to have the best of the best and start to raise the bar for the industry. But with respect to the objective being too ambitious, Charles and I both knew that this was, quote unquote, go big or go home. And we committed to giving it a certain amount of time and a certain amount of investment, and if we couldn’t see the kind of return we were hoping for, we were going to shut it down.

SG: Advisors jumped on board. But asset managers and custodians did not. Was Advizent too politically hot for them?

SL: I think there were multiple forces that contributed to this. If you look at the advisor side, the industry is traditionally light on marketing. Very few advisors have any significant budget toward marketing. Most have chosen to go independent for a reason. The idea of being part of another brand might be anathema to them. See: Top 10 ways financial advisers can 'market smarter’ — and enjoy it more in 2012.

And I think a significant number of businesses in our industry, RIAs, are lifestyle businesses that have somewhere between zero and 10% margins when you normalize their comp. So the kind of dollars we were talking about theoretically were expensive unless they saw immediate results.

That being said, there were a number of advisors who really believed in raising the bar for the fiduciary standard for consumers and were very much behind this and were supportive. An unfortunate number of folks, I think, had just one thing in mind: How is this going to translate into direct new business? In other words, am I going to be able to measure an immediate [return on investment]? I also think there was a lot of risk of free-riding, where people were like, 'Well, let’s see how it goes.” And if everybody waits and sees, there never will be a movement, if you will.

The asset managers were a little more challenging because there are thousands and thousands of them. And so our [strategy] was to go to the biggest players and have them set the trend. But the truth is, they had massive channel conflict. They make a ton of money from Wall Street, they have their own marketing efforts, and they just couldn’t get behind it. A few indicated interest, but for the most part, nobody really stepped up the way that was needed. See: Why a $2-billion RIA is embracing the idea of a $1 million annual marketing tab, and how Advizent fits in.

SG: What about the custodians?

SL: To me, the custodians were the most immediate and natural beneficiaries. There are five major custodians that have the significant majority of the assets that RIAs handle. And so it reasons that every new dollar that came in under an RIA’s advisement ultimately would end up under custody of those five players. So they should have been the natural supporters of this, because a rising tide would have lifted all boats.

But as you walk down each of the custodians, we had answers for lack of support from heads of companies that didn’t even return calls and canceled meetings just because they had other priorities they were dealing with. One of the major players had channel conflict. And then you had programs that were trying to launch their own brand that effectively supported the RIA industry, and they didn’t want anyone honing in on their territory. See: What LPL’s Bill Dwyer had to say about recruitment, and pressure from custodians.

SG: You wouldn’t have launched Advizent if you weren’t optimistic that the industry would support it. Were you surprised at the resistance from some of the asset managers and custodians?

SL: I think we were surprised at the resistance from the entire industry. This was one of those things where whenever you talked to anybody, whether it was a custodian, an asset manager, an RIA a or a consumer, they all effectively said, “Man, this is a great idea. This is needed. And we wish you a lot of luck.” And then effectively they wanted to wait and see. There is no doubt there is a need. There’s massive confusion in the marketplace. And all we were trying to do was create a Good Housekeeping Seal of Approval for consumers and raise the bar for the industry. How do you argue with that? See: Advizent hits $100-billion asset target in a matter of weeks triggering hires.

SG: What did you learn from Advizent’s failure?

SL: If you talk to any entrepreneur who has been successful, they will tell you that they learned more from their failures then from their successes. So, clearly we learned a lot—in addition to the beautiful tax deduction that we were able to garner.

We learned about motivations in the industry and where the consumer stands … consumers are thought of last. It’s “How can I make money?” Generally I saw a lot less altruism than I’d hoped for in the industry. And I think that it’s going to create an environment for massive disruption in the industry. I think there’s opportunity for change in the industry that will come at a pace that will disintermediate a lot of these players.

SG: It sounds like, since asset managers and custodians and your fellow advisors didn’t answer your call, you’re banking on the consumer to step up and create that disruption in the industry.

SL: I think a lot of our industry has failed to recognize certain aspects [of what we provide] as a commodity, and they still charge for them as premium services. I think ultimately as those things really become commodities, and consumers can access them in a simplified and transparent manner, I think the industry is going to get their pants pulled down.

SG: Wow. So who’s going to do the pantsing?

SL: I think some of the online providers that are touting no economic conflicts of interest, and that are pricing the commodity services of asset allocation and manager selection at commodity prices, are going to disrupt the industry from a pricing standpoint. I also think that there’s going to be a real separation between fiduciaries and non-fiduciaries. And ultimately, once consumers realize how they have been treated, I think there’ll be a rebellion of sorts. See: Online RIAs will mostly fail — and here are 10 reasons why.

That being said, there are always going to be people who are going to want to hire the manager that is the hot dot and try to beat the benchmark. I mean, we are an ego-driven society and a very competitive society. And I think that will keep the asset management business thriving for a very long time. I actually think the RIA industry, while they are growing nicely and taking market share, they’ve got some real risk [as well].

SG: Is the failure of Advizent a win for Wall Street?

SL: I would say it’s less of a win Wall Street and more of a loss for consumers-slash-investors. And a loss insomuch as it’s a deferral. In other words, I believe that ultimately consumers will get the information and will benefit. But I think that this is a delay that will continue to cost them money. See: Jack Bogle steps aside as senior standards chairman at Advizent.

SG: So what are you going to sink your entrepreneurial teeth into next?

SL: I think it’s fair to say, if you know my history, [that] I never settle for the status quo. So clearly we will look for ways inside and outside of our current business to be innovative.

I continue to be focused on promoting a true fiduciary standard and capable advisors. I think consumers deserve true, capable fiduciaries. And I think there are a lot of our industry that claims to do things—the easiest example I can give is estate planning—when for many advisers, that means referring work out to an attorney who refers them business. See: Fiduciary leaders splinter into two advocacy groups over divergent views.

I think consumers should be able to tell the difference between advisors who can do what they say they do, and those that can’t. And I think they should be able to tell the difference between a fiduciary and someone who’s not.

People who have conflicts of interest should be called brokers, and people who don’t should be called advisors. It’s simple. Then, you can look at the spectrum of offering. So that’s what I’m focusing on: how to differentiate between those that are capable fiduciaries and those that are not.

SG: Will the fact that Advizent was unsuccessful make you more gun-shy or more gung ho about trying something new?

SL: Gung ho! Clearly gung ho. I think it just underscores the problem, and so since the problem hasn’t gone away, I need to find a different way to address the solution.

SG: Let’s talk about Convergent. What’s changed there since you handed over your CEO title and became chairman a year ago?

SL: I was able to extricate myself from the day-to-day operational activities and hand that work over to my partner of 15 years [David Zier], who I might add is doing an exceptional job. And I’ve used that free time to work on Advizent, to complete a book that will be out in the fall and to think of ways to attack this issue. With the time that’s still dedicated at work, I continue to focus on things that I think are most important, which are trying to innovate how we service clients and working with the clients I specifically service with a heavy emphasis on estate and structural planning.

SG: What’s your book about. and why did you decide to write it?

SL: It’s about the inherent conflicts of interest in the industry, the potential for overcharging for commodity services in the industry, and how consumers can tell the difference. And I wrote it really to get the truth out about the unfortunate circumstance in our industry where many people put themselves ahead of the consumer, which I believe not only hurts the consumer, it hurts the industry and ultimately hurts our country. See: Lockshin: All advisors must deal with the threat of low industry standards — before investors do it for them.

SG: Are you concerned about stepping on toes?

SL: No I never have been. My mentality has always been, tell people what you believe and if it makes sense, people believe it. And always be open to the idea that you may be wrong. But I don’t see how you can be wrong trying to take care of the consumer.

SG: It seems like your success with Convergent has freed you to move into a new stage in your life where you’re asking big questions and trying to leave a mark on the industry.

SL: Yeah, I’m approaching my 50s, and this is probably that stage of your life where you start asking, 'What am I here for?’” I’ve been fortunate enough to have people help me out, and I’d like to pay it forward by helping out consumers. Because I wouldn’t have had the financial success were it not for them.

Steve Garmhausen has done freelance writing for ventures owned by Steve Lockshin.

Charles Goldman

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Steve Lockshin

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David Zier


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Pat Mulvey

Pat Mulvey

May 22, 2013 — 12:57 AM

If I understand this, which I may not, this is sad. As someone who has sat on the side of the table as a fiduciary- complete with the liability, expectation and responsibility- I find this offensive. Having the obligation to act in the best interest of the participants or asset owners should not be a marketing ploy. That’s what this seemed to be. Unfortunately, it seems as though we have some folks who have no idea or experience in this world and for my money it seems cavalier to treat so many things as commodities. Does this person have any idea what happens without proper due diligence? Stuff happens and managers blow up, asset allocations go amidst- but if you cannot point to the scrutiny which led you to you decisions… If this group ever made it to the board room consisting of people with such a real fiduciary responsibility- they would be asked to leave. Others have and fiduciaries have seen every slick marketer. They should have failed and, in my view, best for everyone they did.

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