The better part of registering with the SEC directly as an RIA is that nobody is making you do it and clients can feel it even if they don't fully understand your poorly phrased explanations

January 3, 2017 — 10:50 PM UTC by Brooke Southall


Brooke's Note: I awoke today to a cold rain and the third day of a sore throat. I decided to stay home. It wasn't the way I wanted to ring in my first true workday of 2017. But wretched symptoms aside, I have always liked the way a fresh cold quiets my mind and I wondered if I could capture some New Year's thoughts between hacking coughs in a way that I wouldn't otherwise. I have been mulling the rise of the RIA business against the counter-trend of a backlash against recent advances of fiduciary care -- i.e. concerns about rolling back the DOL rule.  See: The DOL rule is DOA -- and that's just the beginning, says RIA champion Brian Hamburger, law school chum of odds-on chief of staff Reince PriebusThat backlash is occurring against a backdrop of a president-elect who seems mired in conflicts of interest and perhaps a Congress that sees those conflicts as a hall pass gut an ethics panel. So pass the Kleenex -- here goes.

Like every other news junkie in America, I awoke this morning to the disheartening headline informing me that Congress had voted to gut the Office of Congressional Ethics -- a body of worthy citizens empanelled in 2008 to act as a sort of SRO for members of Congress.

Welcome to 2017.

On closer perusal, I learned that the event occurred Monday. Today, under the awe-inspiring pressure of a Trump tweet, Republicans rescinded their parry.

Formerly, they had called the ethics panel unfair, which the President-elect also said was true in a tweet. (See the New York Times article here.)

Closer to home, RIAs enter the new year in suspense about whether the Department of Labor will say "never mind" about implementing its hard-won rules aimed at forcing brokers play by the rules that RIAs embrace voluntarily as a matter of course. See: Using DOL as cover, Bank of America cuts the Merrill Lynch bull as it adds a robo, stops paying brokers to stick around and kicks John Thiel upstairs.

The takeaway surrounding all this hemming and hawing about ethics and rules -- pre- and, most certainly, post-Trump -- is that they are encased in red tape, not business-friendly and, most importantly, optional, whether they apply to legislators or to those entrusted with other people's money. See: Tick, tick, tick ... FINRA rewrites 'culture,' 'conflicts of interest' and 'ethics' into a farcical 'best interests' code after DOL drops a bomb on its suitability ethos.

Kosher inside information

Indeed, with Donald Trump becoming the president of the United States while simultaneously acting as the owner of an international corporation, the question of how stringent ethic rules should be has morphed into whether they were ever such a big old deal in the first place. 

The very good news for RIAs entering 2017 is that they are trading on the most kosher kind of inside information: RIAs know that being held accountable as no-conflict stewards of wealth is plenty doable because it is business as usual. They know how to do it. They know the psychic rewards. They know the financial rewards. See: The short scoop on Wall Street's claim that the DOL rule is too long.

What makes this even better news is how clients are coming to expect such probity from their financial services professionals as business as usual. No one likes red tape but all clients want, and now increasingly expect, their money to be managed as if the SEC and the advisor's priest/rabbi/imam/shrink were looking over their shoulder.

With Washington treating fiduciary care of personal wealth as some Obamacare equivalent, an oasis such as RIAs provide will continue to have value.

The only way RIAs can fail to capitalize on the stark contrast between the RIA way and the other way is to tread the forlorn path of 17 failed Republican primary contenders and one Hillary Clinton -- namely by doing a crappy job of explaining what the challenge is and why RIAs are the best solution to it. See: How Donald Trump jolted Sallie Krawcheck out of sexism denial, maybe, and the startlingly retro remedies she prescribes for young women

Make a garden grow

For instance, check out this jargon-packed RIA value proposition the likes of which I see all the time: "We are a holistic client-centric firm that delivers the highest levels of fiduciary care and wealth management."


But what is wealth management? What is fiduciary care? Aren't all firms client-centric if they are staying in business? Holistic? Like what, acupuncture?

I cover financial advice for a living and I'd have a hard time answering those questions -- at least without creating a whole new set of questions. See We're better than this: The 10 words and expressions that should be expunged from the RIA business

If I were to start, say, Southall Financial Advisors, my mission statement would begin: "I started this firm because I wanted a place where I would feel safe sending my mother or best friend to receive financial advice that would make them confident about their future." See: What is the value proposition of a financial advisor -- and how is a budding RIA culture upping the ante?

It would be a place where clients received the best counsel at a fair price. I would want clients to know what they paying for and why and never to feel like they were getting a sales pitch.

By the same token, I would encourage my hypothetical clients to deal with their finances with the same forthright conviction they bring to their jobs and their personal lives. Yes, that's a lot to ask when dealing with such an emotionally charged topic. But financial decisions, I would tell them, involve daily confrontation with the meandering future of you, your family and your investments, and requires our combined knowledge to make those investments grow.

If RIAs can find a way to explain this with clarity and conviction to clients, we assure their future and with it our own, whatever political vicissitudes may come.

2017? Bring it on.

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Dex Morris said:

January 4, 2017 — 1:24 AM UTC

2017 RIA's, with or without DOL compliance regulations - Independent advisory firms have an opportunity (this year forward) in building substantial HNW Clients if they so desire, or sitting with investors, those folks wanting/needing a truly trustworthy advisory relationship ( always about the client, not about the transaction). Through my travels and consulting with various independent advisory or regional RIA's, I'm always amazed as to the lack of identifiable or incremental steps calibrating client or personal values and how they align with the advisors value (suggest client spouses re investment intentions / motivations). Consciously or subconsciously, potential clients have always suspected transactional priorities of a broker-dealer (private banker, etc.) big commission checks, as opposed to a truly advisory professional. Investor clients fully comprehend what trust is, how you develop that relationship and when someone is putting their client last. HNW Investors are sophisticated professionals, DOL doesn't have to adjudicate rules or threats to level the playing field, is what the profession is all about! "Relationships are like a rare painting-it takes time to create and should never be lost."

brooke southall said:

January 4, 2017 — 1:35 AM UTC

Yes. So can the RIA business find its voice to express the inexpressible without making the HNW consumer gag on words that are too corporate, too obtuse or dripping with too much sanctimony? You need to signal properly to a client that you are trustworthy without putting it into those words. Few people trust somebody who comes out and promises that they can be trusted. It's like promising a Rembrandt, to build on your metaphor. A masterpiece begins a few thoughtful, humble brush strokes.

Stephen Winks said:

January 4, 2017 — 4:19 PM UTC

A simple explanation of ongoing accountability is the universal starting point of trust, with the humility of an assured uncertain capital market. SCW

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