News, Vision & Voice for the Advisory Community


Why the DOL's Draconian and premature interpretation of its new rule is the 'end of the world as we know it' for wirehouse recruiting but a bonanza for the RIA business

Last week's DOL Q&A cast an immediate chill on wirehouses whose back-end-loaded incentives meant to jack up sales production have essentially been outlawed

Author Guest Columnist Howard Diamond November 4, 2016 at 4:02 PM
no description available
Howard Diamond: Advisors are reconsidering what’s most important to them, with a push from the very firms they have come from by way of less monetary incentive.

Stephen Winks

Stephen Winks

November 5, 2016 — 4:03 PM
The most powerful incentive for our most successful advisors is not matching the highest bid, but the support rendered for their professional standing in advisory services. There is an indisputable correlation between how adept an advisors is in rendering advice in a highly competitive business environment and their compensation. The fact that most brokerage firms openly oppose the fiduciary standing of brokers (as evidenced by the SIFMA/FSI suit of the DOL) translates into less than enthusiastic support of fiduciary duty for ALL client accounts. Thus, RIAs do indeed have an edge, but not all RIAs have the size and scale to be exemplary in advisory services. Expert standing requires the advisor to go far beyond the conventional brokerage (algorithmic) approach to advice. How (1) trade execution is treated (minimized in the clients best interest), (2) adoption of prudent process (asset/liability study, investment policy, portfolio construction, performance monitor) which puts "financial services" back into the financial services business (has yet to be adopted by any US b/d) (3) the retooling of product menus to be consistent with portfolio construction requirements of fiduciary duty; all are requisit considerations that will determine professional standing and market share enjoyed by advisors . By default, there are no brokerage recruiters that can speak to these issues. Thus our largest and most capable RIAs who are in fact liable for their "tucked-in" advisors counsel, have a massive competitive edge. It would be great for the industry to compete on the basis of the depth and breadth of counsel supporting firms provide. A virtuous cycle of innovation would be fostered and the professional standing of being an advisor would be achieved. There are many Mega RIAs emerging each with a market value of more than $100 million which will redefine the industry and professional standing which will be the hallmark of excellence. Five years ago this way not the case. Keep your eyes on Savant, CapTrust, Edelman, etc. which have the critical mass and technical support to constitute large scale institutionalized support for fiduciary duty. None on these firms have formalized recruiting and by necessity are highly discerning in who they entrust their well earned reputations. These firms do not straddle the line between product sales and advisory services, they are driven by professional standing in advisory services. SCW, SCW

Mentioned in this article:

Diamond Consultants
Top Executive: Mindy Diamond

RIABiz Directory

The Industry Sourcebook for RIAs

   |    LISTING

RIABiz Directory sponsored by:

Directory Sponsor Logo