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At Alex. Brown, one manager moves up and another out in wake of Van Law's RayJay exit

At Alex. Brown, one manager moves up and another out in wake of Van Law's RayJay exit

Author Dina Hampton March 26, 2018 at 7:08 PM
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John Davis III

People Moves

Stephen Winks

Stephen Winks

September 25, 2009 — 10:13 PM


The underlying industry acrimony is derived from the thought that advice is homogenus which is no true. There is a hierarchy of advice from (1) transactions entailing no advice, to (2) financial planning entailing needs based selling (unless it is continuous and comprehensive in nature which is not technologically possible for most, which would entail fiduciary standing), to (3) investment management consulting entailing advice being treated as a product which is sold, to (4) fiduciary counsel entailing advice being a process the advisor manages which provides continuous comprehensive counsel.

The problem is each group of advisors believes they are providing advice, which they are, it is just may not be fiduciary counsel. This is why planners are so vehement that they are the protectors of fiduciary standing, which is true if they were providing continuous comprehensive counsel based on the objective criteria of statute, case law and regulatory opinion letters. But that is not possible from the perspective an an underresourced planner. It may be aspirational, noble, the right thing to do but that does not mean they are actually providing fiduciary counsel. My experience has been when you bring up the practical reality of enabling processes, technology, statutory documentation, a functional division of labor, conflict of interest management, advisory services support necessary to safely bring fiduciary standing within the reach of every advisor as clients will allow—there is push back because it makes it so clear planners are presently falling short in providing the continuous comprehensive counsel required for fiduciary standing—even though they genuinely would like to. Clark Blackman and the AICPA buy into the more disciplined structure needed because technical competency is so important to them, but there are others who vehemently disagree because they wish to the aspirational good intentions school of thought is sufficient to attain fiduciary standing. I put together the original fiduciary standards group and deeply understand the cultural push back on the specific fiduciary duties entailed and the resources required which were deemed far less attractive than simply maintaining good intentions were sufficient. No solution resulted nor could it as long as good intentions were good enough—which brings us to todays crisis of confidence because we know good intentions don’t count. There has been and continues to be little selfless statesmanship when it is most needed. Planners seem to be interested in protecting their own turf rather finding a solution. The same for brokers and consultants, they can’t see past their own self interest.

I have found free enterprise to be the best and perhaps the only solution. Let the marketplace decide whether good intentions will trump actual fiduciary standing based on statute case law, regulatory opinion letters with an audit path and expert third party opinion letter to prove it.

The solution is simple and elegant, with the definition of advice based on unimpeachable criteria of statute (ERISA, UPIA),case law and regulatory opinion letters. There can be no dispute as to the legal principles, hundreds of years in the making. This effectively manages self interested push back.

The solution is the creation of advisory services support for transactions, planning, consulting and fidiciary counsel as each client will allow. This brings fiduciary standing within the reach of every advisor for every client but it is up to the consumer to permission access to all their holdings which makes fiduciary standing and adding value possible. The advisor can be held accountable for their recommendations, overall investment performance and acting in the best interests of the consumer. If the consumer does not want to allow the advisor to act on their behalf so the consumer does not buy or sell what the advisor suggests in the amounts recommended, when recommended, then the broker is left off the hook of accountability. The client then becomes their own advisor and the broker acts in a transactions mode. If the client wants to educate their children and retire, the the broker can make the consumer aware of their investment alternatives, but the consumer is responsible for determining the investment merit on their own, regardless of how limited their investment knowledge and experiance may be. This is principally how financial planning is conducted today, particularily if the planner works in a brokerage firm. Though the planner would like to do more and act in a fiduciary capacity, the client will simply not allow it nor will the advisors supporting brokerage firm. Advisors who are RIAs and are supported by custodians are in a similar position because if fiduciary standing is asserted it is because the advisor created their own support and is willing to assume fiduciary liability, as their custodian does not support their fiduciary standing for fear of the same liability. The Benefits of advancing an hierarchy of advice are profound. By advancing a hierarchy of advice, the consumer better understands their relationship with the advisor and the advisor is more likely to provide a higher level of advice as their client’s will allow. If there is sincere interest in serving the consumers best interests, it is indisputable that consumers and advisors are better served by knowing where each client is on the hierarchy of advice. The role of the advisor’s supporting firm becomes to help the advisor promote a deeper and broader client relationship along the hierarchy of advice.

If the consumer wants assistance in portfolio construction, they may wish their advisor to act as an investment management consultant, where the advisor working with a menu of investments helps the consumer to achieve their objectives. This improves upon the advisor acting in a transactions capacity as there is the means to determine how effective the advisor is at portfolio construction to the extent the client’s assets are invested in the program. Of course the limitation of investment management consulting is that the consumer can not be accepted as they are incorporating all their holdings both assets and liabilities which can not be incorporated in a more narrow program format. Essentially advice is being treated as a product the advisor sells. In order for the advisor to add value, they must be able to make recommendations in the context of all the clients holdings. Otherwise they could not determine whether their recomendations improved overall portfolio return, reduced risk or enhanced the tax efficiency, liquidity, cost structure of the clients holdings as a whole.

This brings us to fiduciary counsel where advice is treated as a process the advisor manages. By creating the necessary processes, technology, functional division of labor, statutory documentation, conflict of interest management, advisory services support necessary to safely bring easily executed fiduciary standing withinthe reach of every client of every advisor—we resolve perhaps the industry’s biggest challenge. With the necessary infrastructure in place to support the full hierarchy of advice, all the petty turf issues are immediately resolved. Fiduciary standing simply becomes a matter of adoption. Advisors do not want to reinvent the wheel they just want access to the enabling resources to safely and easily execute fiduciary counsel as their clients would allow. By providing a means to prove fiduciary standing by audit path and expert opinion letter we restore the confidence of the investing public. By providing the capacity to respond to the transactions, planning and consulting needs of clients if prefered, there is no longer the need to disparrage one form of advice over the other, just an opportunity to suggest a deeper and broader level of advice which can be provided. This keeps peace in the family and greatly elevates the role and counsel of the advisor.

Space here is too limited to go into great detail on the processes, technology, functional division of labor, statutory documentation, conflict of interest management, advisory services support for each of the ten major market segments etc.

The difficult part has been done, what we need is an institution which is interested in winning marketshare through principled market leadership advancing a preemptive advisor value proposition that outdates everything that has come before it.

Lets hope and pray there is principled market leadership in the financial services industry which understands the necessity of disruptive innovation to etablish market leadership as beautifally articulated and executed by Jack Welch, who won the mantle as America’s most capable manager.


Elizabeth MacBride

Elizabeth MacBride

September 28, 2009 — 2:52 AM

Thanks for the elucidation. Is the idea of a hierarchy of advice accepted in the industry or among regulatory bodies?

Elizabeth MacBride

Elizabeth MacBride

September 28, 2009 — 2:57 AM

In a further addendum, SEC Chairwoman Mary Schapiro gave a speech last Thursday to the Financial Roundtable. It’s particularly noteworthy that she says, below, that the fiduciary standard should not be “watered-down.” Thanks for Knut Rostad for sending this along.

.... I also support the administration’s efforts to apply a fiduciary
standard of conduct to financial service professionals that provide
investment advice about securities, regardless of whether those
professionals carry the label “broker-dealer” or “investment adviser.”
The investors who turn to these professionals for advice expect such a
standard to apply, and they deserve the disinterested advice of a
fiduciary who puts the investor’s interest before its own.

The standard of conduct that applies to the act of giving professional
advice to investors should not be a watered-down, “fair and reasonable”
commercial standard. In order to be consistent with the reasonable
expectations of investors, the standard that applies to this activity,
which is so integral to investors’ financial security, must be the type
of fiduciary standard that applies to a relationship of trust and
confidence, as contemplated by the administration’s proposal.

That being said, however, it is essential to recognize that a fiduciary
standard of conduct, by itself, does not eliminate fraudsters who prey
upon unsuspecting investors. To be effective for the protection of
investors, a fiduciary standard of conduct must be coupled with an
effective and, I believe, harmonized, regulatory program for
broker-dealers and investment advisers. Again, I appreciate the
administration’s inclusion of the need for greater harmonization in its
white paper on financial regulatory reform.

Paul Hynes

Paul Hynes

October 6, 2009 — 9:34 PM

I’m reminded of something once said by Upton Sinclair, that “it is difficult to get a man to understand something when his job depends on not understanding it.” Another way to say this to any advisor is, “What advice would you give if your compensation had absolutely nothing to do with it?” Having been in the brokerage world for 22 years prior to joining an independent RIA three years ago, I understand the challenges and restrictions in that world. Those who desire to break free of these challenges and restrictions and operate as true fiduciaries with their clients have an option – they can leave that environment and enter a new relationship with their clients as an independent RIA. Many brokers are unwilling to do this, for whatever the reason – usually that they don’t want to bother with the business aspects of being independent. I can understand the dilemma. Well, now there are several viable RIA business models that can help them achieve independence while also shouldering most if not all of the burden of keeping the advisory shop open and operating. Anyone who’s truly interested and motivated to change can simply plug and play. With these options available, what’s the next excuse going to be?

These comments are the opinion of the writer and not necessarily those of Burns Advisory Group, an SEC Registered Investment Advisor.

Kathleen M. McBride

Kathleen M. McBride

October 12, 2009 — 2:32 AM

Thank you, Elizabeth and Brooke, for helping to keep this issue in the forefront. We are at the point where the discussion will become very interesting. As one of the founding 12 members of The Committee for the Fiduciary Standard, and editor in chief of WealthManagerWeb.com I have been in a position to report on this issue for a number of years.

I asked SEC Chairman Mary L. Schapiro last March if, because of the market crisis, she thought that this could be the catalyst that could bring about this kind of regulatory change. She said then that, “there’s no question that [the] crisis is a catalyst.” Her advice to advisors: “It’s got to be about putting the customer first in every piece of advice, in every recommendation. And to be there and be available, be patient and willing—there are a lot of very frightened people. But it’s got to be all about putting the investors’ interests first.”

Brooke—you’d noted that SIFMA and FINRA hadn’t spoken. They did testify at the House Financial Services Committee meeting on 10/6; testimony is available here: http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr_092909.shtml

The next day, Oct 7, Wealth Manager held a live Webinar in which Knut A. Rostad, chairman of The Committee for the Fiduciary Standard, and Kevin Carroll, a managing director and associate general counsel at SIFMA, discussed the differences in the SIFMA approach to a “federal” fiduciary standard, which SIFMA proposed, and the authentic fiduciary standard which is what investment advisors must abide by, which is backed by eight centuries of law, and which The Committee for the Fiduciary Standard supports. That archived Webinar is available here: http://www.wealthmanagerweb.com/News/2009/10/Pages/The-Fiduciary-Issue.aspx
My blog post about that is available here: http://www.wealthmanagerweb.com/Exclusives/2009/10/Pages/Federal-versus-Authentic-Fiduciary-Duty.aspx
Keep this dialogue going—it’s so important to every investor!—Kate McBride

Alexander Efros, MBA, CPA

Alexander Efros, MBA, CPA

November 24, 2011 — 7:07 AM

Even with all of the information currently available regarding the differences between the fiduciary and suitability standards, investors are still largely unaware of the specific characteristics of each. To address this issue, I recently released a Youtube video outlining the differences in a clear and concise manner. It is called “Top 7 Things Your Wall Street Broker Doesn’t Want You To Know”. Here is the link: http://www.youtube.com/watch?v=yz7NEVtJaUY. I would greatly appreciate your thoughts on this video.

Additionally, I recently interviewed a Wall Street stock broker to discuss the sales tactics and compensation models currently being used in the brokerage industry. The trailer can be found here: http://www.youtube.com/watch?v=8M7aUZJZtk8. Again, your feedback is welcome.

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