Independent Thinking From WWM

Your Geopolitical Risk Is The Fed

Posted by Robert Bartenstein on Tue, Aug 26, 2014 @ 12:08 PM


Those who cannot remember the past are condemned to repeat it. –George Santayana

Russia may or may not invade Ukraine, again. Gaza may continue to burn, off and on, for another thousand years. Iraq and Syria may be left with militant extremists indefinitely, Africa too. China may continue to expand its military influence in the South China Sea. Actually, all of these things may be likely, as they’ve been going on in some form or fashion basically forever.

At WWM we are paid to think and act independently. That doesn’t mean being contrarian for the sake of it, but it does mean questioning “the consensus” at every turn. Lately, “Geopolitical Events,” the term, has been echoing through the investment punditry and has been used by many as a proxy for, all things bad happening ‘over there’-wherever that may be.  True, international geopolitics are important, but they may be getting more attention than they deserve from an investment perspective.

If you are focused on your investment portfolio’s returns and are looking for geopolitical risk, look no further than your backyard because your geopolitical risk may be The Fed.


In “The Bespoke Report” on August 15, 2014 the Bespoke research firm broke down the S&P’s performance post-quantitative easing (QE) through a Fed lense and made a point I wish we’d had time to dig into on my most recent The Closing Bell appearance:

“In the case of equities, the fear with the taper was that markets would see a repeat of what transpired in 2010 and 2011 when QE1 and QE2 were wound down. In each of those periods equities saw sharp declines with losses of 9.0% and 11.7%, respectively. In fact, the last time the S&P 500 had a 10% correction was surrounding the end of QE2.” (Emphasis added)

And while consensus is for rising interest rates once the taper ends, Bespoke notes that history, suggests a different outcome:

“When QE1 ended in March 2010 through late August of the same year, the yield on the 10-year Treasury declined by 118 basis points (bps). Then, when QE2 ended in June 2011 and through September (beginning of Operation Twist), the yield in the 10-year declined by 130 bps. The yield declined an additional 10 bps during Operation Twist, but generally speaking, the biggest decline in yields came when the Fed was out of the picture. Similar to those prior two periods, the yield on the 10-year has seen a steady decline (60 bps) since the [current] taper began.”

Rates are already low globally, with virtually every central bank in the world trying to stimulate inflation. German 10 year Bunds below 1% only add to the gravitational pull lower. In the US we’ve seen improving employment numbers in the population of people actually still seeking employment, but what we haven’t seen is wage growth. No wage growth, no inflation. 

So while consensus may be for higher rates, inflation and a continuing bull run in the stock market, history provides two examples (the only two we have) of a different outcome. Is it, as Rick Santelli suggested on the program, all priced in? Maybe, we’ll certainly know soon enough.

I believe in understanding geopolitical events as well as the attendant suffering that often accompanies them. In this case however, history suggests that those sorts of headline news events are less likely to impact investor portfolios than moves made by our very own Fed. The 10 year Treasury has already rallied about 60bps this year as the Fed has gradually stepped away. Once QE officially ends in October, we’ll see if history repeats itself in full, in part, or not at all.


Securities offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC.  NFPSI is affiliated with Washington Wealth Management.  Investment Advisory Services offered through Washington Wealth Management.

Topics: CNBC appearance


Posted by Robert Bartenstein on Tue, Aug 12, 2014 @ 13:08 PM

San Diego, CA – August 13, 2014 – Washington Wealth Management LLC (WWM or "the firm"), an independent hybrid Registered Investment Advisor (RIA) supporting fee and commission-based independent advisor practices across the nation, today announced it was recognized by the Financial Times (FT), a leading international news outlet, in its inaugural FT list of the top 300 registered RIA firms in the United States.  

The elite group of RIA’s was chosen based on assets under management, the growth rate of those assets, compliance record, firm’s year’s in existence, advisors with industry certifications and online accessibility. The Financial Times found that the honorees embodied some of the leading trends in the investment management industry: more than 88% of the FT 300 work in teams, an expanding part of the business; 70% of the firms use Exchange Traded Funds (ETFs), the increasingly popular vehicles akin to index-tracking funds; and nearly two-thirds of the assets managed by the FT 300 firms are in “discretionary” accounts, a fast-growing model in which the advisers have full control of how the assets are managed.

Rob Bartenstein, CEO of Washington Wealth Management, said of the recognition, “We are very proud of this recognition by the Financial Times, a leading global media outlet with a long history of pioneering coverage of the financial services industry.  Being named to a prestigious ranking such as this underscores the outstanding work of every member of the Washington Wealth Management team in supporting our affiliated advisors, and of course, the outstanding service provided by our advisors to their clients across the United States. Our firm was founded on the belief that the independence of seasoned advisors, coupled with excellent practice management support and resources, best positions their practices for robust growth. To have our mission realized in such a meaningful way, by the Financial Times, is a strong validation of our firm’s strategy.”

Washington Wealth Management is a wholly-owned subsidiary of NFP, has approximately $1 billion of assets under advisement and has a community of 22 advisors registered under WWM’s RIA.



Based in San Diego, CA, Washington Wealth Management LLC (WWM) is a hybrid registered investment adviser (RIA) supporting fee and transaction-based independent financial advisor teams across the nation. WWM was established by wirehouse veterans with the express purpose of enabling former wirehouse financial advisors to achieve independence and growth. The firm's platform is comprised of an independent RIA, and a multi-custodian offering, in association with NFP's independent broker/dealer, in order to provide its financial advisors with an open architecture platform and independence across both fee and transaction-based business models. WWM has offices in San Diego, Los Angeles and Orange County, CA; Westport, CT and Middleburg, VA. More information is available at




National Financial Partners Corp. (NFP) and its benefits, insurance and wealth management businesses provide diversified advisory and brokerage services to companies and high net worth individuals, partnering to help preserve their assets and prosper over the long term.   NFP operates in three business segments. The Corporate Client Group provides corporate and executive benefits, property and casualty insurance and retirement plans. The Individual Client Group includes retail and wholesale life insurance brokerage and wealth management advisory services.  The Advisor Services Group serves independent financial advisors by offering broker/dealer and asset management products and services.


Most recently NFP was ranked number 11 on Business Insurance's 100 Largest Brokers of U.S. Business and on Best’s Review’s Top Global Insurance Broker lists; it operates the fifth-largest executive benefits provider of nonqualified deferred compensation plans by number of plans, as ranked by PlanSponsor; and operates a top 10 independent broker/dealer as ranked by NFP is also a leading independent life insurance distributor according to many top-tier carriers. For more information, visit


NFP Advisor Services Group is a business segment of NFP that includes NFP subsidiaries NFP Securities, Inc., member FINRA/SIPC, and NFP Indesuite, Inc.




Washington Wealth Management Media Contacts

Chris Clemens / Michael Dugan

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(206) 420-1525 or (206) 420-3851 or

10 Things Financial Advisors Should STOP Doing

Posted by Robert Bartenstein on Wed, Jul 23, 2014 @ 16:07 PM

bobbyCatching a great article on your twitter feed these days is the equivalent of catching a fish in a river with your bare hands. That said, I was fortunate to see and read Jeff Haden’s gem entitled Be Happier: 10 Things To Stop Doing Right Now on

All the self-help gurus seem to be good at telling us what we have to “start doing” to achieve something, who’s good at telling us what to STOP doing? For advisors already short on time, subtraction is preferable to addition any day of the week. And while the business of helping clients achieve their dreams can be exhilarating, it’s not like every day brings a torrent of rainbows and lollipops. Like Mae West said about aging, it’s not for wimps.

Jeff Haden’s list of sins (HT my Catholic upbringing) begins with Blaming and ends with Fearing. In each case, these habits can surely affect our personal and professional happiness. If improperly managed they’ll either detract from our ability to succeed or keep us from chasing our dreams at all. From a client’s perspective, when these traits are personified they probably confirm every suspicion they have about what’s “wrong” with us as a professional class. So with apologies to Jeff, I've adopted his outline but modified the approach to suit the financial services business. Here's to your happiness. 

1. Stop Blaming. When things go wrong, take the blame. Clients appreciate that. Blaming your firm, for example, probably makes them wonder why you’re not smart enough to be somewhere else. Taking the blame is an empowering move and because you hate being wrong, you’ll do it better next time to avoid the same outcome repeating itself. When you get better and smarter you get happier.

discostu2. Stop Impressing. Clients want to know that you’re sincere, that you’re intelligent, that you think things through, are reliable and trustworthy. Don't be flashy. New red sports car? You know they're thinking "Is that where my fees go?" Or worse, "The first advisor who shows up to my house in one of those is so fired." And not because they don’t love Porsche. It’s because if you’re that tone deaf they almost have to wonder what other character flaws you possess that they can’t see. None of this requires you to brag, boast, show off. In fact, it works against you. Warren Buffet drove a beater for years, remember? Relax. You'll be happier.

3. Stop Clinging. Speaking of firing someone, holding onto the client you think you need won't make you happier; letting go so you can reach for and try to earn what you want will. The classic case is a big client you simply cannot stand, the relationship is combative, unpleasant or downright mean. Who knows how it got that way? But it's become sand in the gears of your businesss, costing you and all of your other clients your valueable energies. Forget blame. The point is to let it go. You’ll feel like you’ve taken a shower, so will everyone who works with you. The money simply isn’t worth it. As Haden notes, even if you don't succeed in earning what you want, the act of trying to be true to yourself will make you feel better about yourself.

4. Stop Interrupting. Jeff writes, “Want people to like you? Listen to what they say. Focus on what they say. Ask questions to make sure you understand what they say. They'll love you for it--and you'll love how that makes you feel.” Stop trying to puke all that knowledge all over me. I got it. I want you to listen to me when I’m talking. Heck, you might be the only person who ever actually listens to what I have to say, my kids certainly don't. Advisors can take advice from the drill instructor who once said, "Spend less time on Send and more on Receive." Clients will love you for it and you'll do more business as a result. Destination- Happytown.

5. Stop Whining. The truth is, sometimes you need to get it off your chest. That can help.whiners But as Haden says, “Friends don’t let friends whine.” Financial advisors really don’t have time for whining but that hasn’t stopped us from turning it into an art form. And Haden’s right, “Your words do have power, especially over you.” The real problem with whining is that when you’re done, the problem’s likely to still be there. Advisors, particularly those who are business owners with the power to enact change should spend that energy on action not agony. Get back in the game and fix what’s wrong. You’ll feel better.

6. Stop Controlling. Jeff writes: “Yeah, you're the boss. Yeah, you're the titan of industry. Yeah, you're the small tail that wags a huge dog. Still, the only thing you really control is you.” If you find yourself trying hard to control other people you’re going backwards. Clients don’t like pressure. They like objective fact-based advice. The oldest rule in the book is that no one has to do business with someone that makes them uncomfortable. Be firm but not controlling. A physician may say, “Ms. Smith, you’re sick, you have cancer, as your doctor I recommend chemo” but what she won’t say is “And I will be driving to your house to deliver you to treatment on Tuesday."  If Ms. Smith doesn’t want to go, that’s her business. Find clients who want to go where you're going and then give them everything you’ve got, you’ll both be happier with that arrangement.

7. Stop Criticizing. You know how you say to prospects and clients, “I don’t want to say negative things about my competition, but…” and then you go on and do it anyway? Yeah, it turns out they really do hate that. Even if it doesn’t hit them at the moment, it ends up casting a shadow over whatever you say afterword. Jeff notes, “Yeah, you're more experienced. Yeah, you've been around more blocks and climbed more mountains and slayed more dragons. That doesn't make you smarter, or better, or more insightful. That just makes you you: unique, matchless, one of a kind, but in the end, just you.” Here’s a fact, people do not typically respond positively to negativity, and you don’t need it in order to shine before your audience. Stay positive, it will have you standing taller and your clients feeling better. 

describe the image8. Stop Preaching. Who’s not tired of the sanctimonious declarations that "fee only-ness" is next to Godliness. Seriously? Believe me, there’s a reason your grocery store doesn’t charge a fee. Do I prefer fee only business, yes. But it’s not the best thing since sliced bread, which incidentally I pay for on a transactional basis. As Jeff writes, “when you speak with more finality than foundation, people may hear you but they don't listen. Few things are sadder and leave you feeling less happy.”

9. Stop Dwelling. I once saw an expert defined as someone who’s already made all of the mistakes. That’s surely the truth. There is value in the past and in the mistakes we make along the way, but only if we learn enough to avoid those mistakes in the future. If you’re sitting describe the imagearound hating your firm, your partners, your assistant...rather than doing business, who loses? When Springsteen sang, “you have to learn to live with what you can’t rise above…” he wasn't talking about your choice of back-office service provider. Stop dwelling on decisions and choices that no longer work. As Jeff writes, "Think about what went wrong, but only in terms of how you will make sure that, next time, you and the people around you will know how to make sure it goes right.”

10. Stop Fearing. No reason to modify what Jeff wrote here. The rest is pure Haden. "We're all afraid: of what might or might not happen, of what we can't change, or what we won't be able to do, or how other people might perceive us. So it's easier to hesitate, to wait for the right moment, to decide we need to think a little longer or do some more research or explore a few more alternatives. Meanwhile days, weeks, months, and even years pass us by. And so do our dreams. Don't let your fears hold you back. Whatever you've been planning, whatever you've imagined, whatever you've dreamed of, get started on it today.

If you want to start a business, take the first step. If you want to change careers, take the first step. If you want to expand or enter a new market or offer new products or services, take the first step. Put your fears aside and get started. Do something. Do anything. Otherwise, today is gone. Once tomorrow comes, today is lost forever. Today is the most precious asset you own--and is the one thing you should truly fear wasting."

Haden's more than on the mark here. The simple truth is, life rewards action. Financial advisors should always take action to preserve their ability to best serve their clients, maintain their freedom, their personal brand and their enterprise value. There's only one channel in our business that can provide all of these attributes. If you've been considering making the move to independence and freedom, now might be the time to take action, it just might make you happier.

Jeff Haden's full article is attached here


Mark Cuban, Student Loans and That Kid Living in Your Basement

Posted by Robert Bartenstein on Sun, Jul 13, 2014 @ 06:07 AM

Mark Cuban recently recorded a video segment on the state of student loan debt and its impact on borrowers and the educational institutions they attend. Video

Mark's obviously a smart guy and he makes some valid points about how a policy of caps on guaranteed loans could ultimately result in the closure and consolidation of a lot of colleges, I agree. A more urgent issue may be the realization for some that even if you aren’t attending a university or working for one, this issue has implications for you too. Said differently, there are some reasons everyone should care about this issue and its resolution. Before we get to that however, I want to add some context and background on how we got to this point. If you’re like me, these are stats that may surprise you:

  • The cost of college tuition has gone up roughly 1000% over the last 30 years
  • Inflation over that same period; 300%
  • Healthcare over that same period; 700% 
  • For 40 consecutive years, every year has seen an overall increase in the cost of a college education.

And while total student loan balances continue to skyrocket, you know what's not going up? Incomes. According to the Wall Street Journal, from 2005 to 2012, average student loan debt has jumped 35%, adjusting for inflation, while the median salary has actually dropped by 2.2%. (full article here; WSJ) Sweet trade, right? Here's what that looks like in geek:


By now we are all familiar with the lovingly mocked Boomerang Kids spoofed in movies like "Failure to Launch." Unfortunately, the reality isn't as funny. Starting in about the mid 1990's, students began to ring up increasingly high tuition bills as colleges and universities raised tuitions. The result has been a rapid rise in the number of student loans facilitated by institutions like Sallie Mae. Both the amount of debt and the percentage of kids taking on debt spiked through the 1990's. That number has continued to expand. Today, more than 70% of graduates leave school with loans. The average indebtedness is $33,000 per student, according to work done by Mark Kantrowitz, publisher at Edvisors. Even after adjusting for inflation that’s nearly double the amount students borrowed 20 years ago.


For many of us it would be tempting to simply sip our glass of chardonnay, contemplate our summer getaways and allow all of this to be a very unfortunate problem for those children entering school in the fall. But as Cuban rightly notes in the video, this debt load (currently over $1 trillion) does come home to roost like Matt McConaughey's character- literally and figuratively. It's a big, fat, drag on growth, living in the basement of our economy, eating cereal out of the box, and playing PS-3 with its friends. It’s also choking off purchasing power in an increasingly meaningful way.



The result is that many of the indebted can't afford to do the things their parent's generation did at their age; specifically things like buying homes and cars- which would conveniently be just their problem if it didn’t hurt all of us, especially when you consider that home buying is a foundational pillar of our economy.

Holding aside the moral issue related to loading this population cohort up with debt just so they feel eligible to "get into the game." And removing the unknowable societal cost we all pay when individuals are forced to make purely economic career decisions rather than follow their passions, this is an economic issue that's likely to cause some problems for all of us if it continues to go on unchecked.

As Cuban alludes to in the video, a federal resolution of the issue that includes loan caps would likely implode tuition levels- and more than a few institutions of higher learning in the bargain. That's a problem, painful, but survivable. And yes, it's a little tacky to argue that student loans are impairing the ability of our newest wage earners to borrow and become indebted for other, more consumer-oriented reasons, I get that, but I didn't make the rules of this game. The facts are that mortgages and car sales are far more immediately and directly impactful to the broader economy than are student loans. And while borrowing money to get that ever important degree is also a necessary part of the system, the federal government's express or implied backing of student loan debt has allowed an ever-avaricious educational lending economy to take root, to distort both costs and the definition of what's reasonable at the expense of some of our most vulnerable (and valuable) citizens.

What's been created is an un-virtuous cycle where the sheep get shorn chasing the sheepskin. It deserves the attention it’s getting lately, and it deserves a solution.
















WWM's CEO Rob Bartenstein is Thursday's Big Interview on MoneyLife Radio

Posted by WWM Marketing on Thu, Jun 26, 2014 @ 16:06 PM



On Thursday June 26th, Rob Bartenstein, CEO of Washington Wealth Management appeared on Chuck Jaffe's national radio show, MoneyLife. Rob was the featured guest during the Big Interview portion of the show.

In a fun and wide ranging segment, Rob discusses his view on the markets, the direction of interest rates, the state of mental health of the investing public and the independent advisory movement. Chuck is a great host and the two gentlemen certainly seem to have enjoyed their discussion. 



WWM Honors the 70th Anniversary of D-Day

Posted by Robert Bartenstein on Fri, Jun 06, 2014 @ 11:06 AM

Today WWM joins the world in celebrating and honoring the 70th anniversary of the D-Day invasion. Operation Neptune was the codename for the Normandy landings, while the larger operation was codenamed Operation Overlord. I had the supreme thrill of touring the Normandy beachhead last year for the first time with my wife and kids. I’d wanted to see it my entire life but I was also hoping to teach my children something about the meaning of sacrifice. While my kids had more or less a day at the beach, I was shocked to see (in stark reality) the great distances our troops were required to cover under direct and withering fire. On Omaha Beach at the water’s edge looking up the slope to what would’ve been the objective, the Army private in me was left thinking “you want me to go where?!” I’m sure the German privates were looking down asking “you want me to stop what?!”

In US Army Ranger lore, there is no more hallowed ground than Pointe du Hoc, the 98 foot cliff that the 2nd Ranger Battalion was tasked with taking in order to destroy a coastal gun battery believed to be located at the top. Veterans of the fight describe trying to scale the cliff with grappling hooks and rope ladders while German soldiers cut the ropes, dropped grenades and shot down at them from above. The Rangers eventually scaled the cliff and fought inland. They discovered the 155mm guns well back from the beachhead, aimed at Utah Beach, and destroyed them saving countless American lives. Cut off from the main element, the Rangers ran out of ammunition and resorted to using captured German rifles to continue the fight. After two days of vicious battle, only 90 of the 225 men who started that mission were still in the fight.

The Rangers completed the mission despite overwhelming odds and massive casualties. Living and dying the motto “Rangers lead the way!”

A sobering story that reminds us that freedom is never free.


Financial Advisors- You Can Get With This, Or You Can Get With That

Posted by Robert Bartenstein on Tue, Jul 16, 2013 @ 17:07 PM

The Advisor Center recently released a white paper discussing the growth of the RIA hybrid as compared to the RIA only model and it contains some interesting discussion points about what’s fueling the growth of the hybrid RIA, WWM’s chosen model, versus the traditional fee only model. Advisor Center cites several reasons the hybrid model is growing so quickly, among them:

  • Client Demand
  • Advisor Flexibility and Support
  • Ability to retain recurring revenue (ongoing commission business)
  • Recruiting advantage

Certainly these issues represent the main components of the model's growth. But there are some issues that work behind the scenes to shape advisor decision-making too. Specifically in the areas of risk and compliance.

While the client facing pitch for fee only business by existing RIA's almost always hinges on the fiduciary standard issue, the business side of the decision is just as important; an equal parts attempt at operational simplicity and the avoidance of costs associated with dealing with two SRO's; the SEC and FINRA. Why have to answer to FINRA if you can simplify your business and cut costs in the bargain? The only hitch in getting there is that you have to drop your Series 7.

As it relates to compliance, that's precisely the question facing our target market of wirehouse advisors leaving the big broker dealers for the first time. Faced with the decision between the fee only option and the hybrid option many questions quickly come to the fore: Can I really give up my Series 7 and still feel like I'm in the same business? Can I leave my firm AND give up my Series 7 at the same time and not implode my business? Can I handle that much change all at once and would I want to? What revenue do I leave on the table? In my experience, most advisors see dropping their 7 as a little too much change amidst the move to independence, so the hybrid model makes a lot of sense.

Surprisingly, Advisor Center’s white paper reports that the largest movement into the RIA hybrid model is not from existing wirehouse advisors but from “(existing) independent financial advisors looking for increased flexibility and client service customizations.” I honestly didn’t see that coming but it makes sense in retrospect. While the breakaway trend continues to gain momentum, savvy advisors who've already made the move to independence are sticking with hybrid, realizing that the give up may not be worth the get, especially if they can affiliate with a larger organization that takes the economic, experience and time consumption burdens of compliance off their plate.

And the trend seems firmly in place, the Advisor Center paper quotes InvestmentNews, November 27, 2012 edition as reporting that “Hybrid advisors surveyed in 2012 said they were 19% more likely to retain their dual registration on a permanent basis than in 2011.” A stat that seems in keeping with the dawn of larger hybrid RIA organizations capable of helping advisors manage their compliance obligations, as well as the continued departure of advisors from wirehouse operations, those whose clients are most attached to preserving a more traditional transactional and fee based business mix.


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* Source; The Advisor Center

Either model is a viable option for advisors contemplating independence and each advisor's situation calls for careful consideration. However, the hybrid RIA answers a lot more questions for breakaway advisors, in particular, by being a ready-made solution for compliance in a format they are familiar with. So while hybrid keeps the day to day regulatory scheme the same for these advisors, it also preserves their business flexibility by allowing them to operate across the entire investment spectrum, from transaction based to fee based business. No trails lost, no business left on the table, total investment flexibility. With apologies to my fee only friends, why limit choice?

All of which brings me to the immortal wisdom of Black Sheep's 1992 hit, The Choice is Yours for advisors trying to decide between hybrid or traditional RIA's- "you can get with this, or you can get with that. I think you'll get with this, for this is where it's at."  



WWM's SoCal Market Director Goes The Distance

Posted by Robert Bartenstein on Fri, Jun 28, 2013 @ 09:06 AM

david closeupTomorrow afternoon Washington Wealth Management's Southern California Market Director, Dave Richman, will attack cancer, and the heat, by competing in the "Running With the Devil Marathon" at the Lake Mead National Recreation Area near Las Vegas, NV.

As if running in 117 degree heat (tomorrow's expected temp) wasn't enough, Dave has chosen to up the ante and will be competing in the 50 mile run rather than the 26.2 mile marathon option. He will be racing to help raise money for the Jonsson Cancer Center Foundation at UCLA.

Dave, we love and respect you and your efforts, they embody all that is good about the desire to help and serve others and they represent the WWM spirit so well! Be safe, stay hydrated and good luck tomorrow! We are cheering for you and your selfless action to support the fight against cancer.



The Battle For Breakaways- Five Ingredients for a Winning Recipe

Posted by Robert Bartenstein on Mon, Jun 24, 2013 @ 15:06 PM

Any examination of the trend that is the breakaway advisor movement leaves the owners of independent financial services firms of all types with a desire to be part of it. Cerulli recently reported that the independent channel grew by $232 billion in 2011. $90 billion of that was advisor movement from the wirehouse to independence, $118 billion was organic growth of assets in the channel and $23 billion was market-related increase. describe the image

For broker dealers seeking to move in the direction the puck is going, these are compelling stats. Two things are abundantly clear; first, hybrid is hot. Within the overall channel hybrid RIA’s are the fastest growing segment and represent a tremendous opportunity for BD’s to gain new advisors as they join the space. These advisors typically come with healthy transactional revenues along with strong fee based advisory assets. Second, $90 billion of new assets (more or less) annually represents a massive opportunity to reinvent one’s business, in whole or in part. With transactional business tailing off, in addition to its traditional unpredictability, getting a leg up on the fee-based side seems like a smart strategy. Add to this the fact that clients are driving the organic growth story by moving assets to the channel at a rapid pace and you have a recipe for long lived success.

So how can BD’s capitalize on this lucrative opportunity? What’s required to attract wirehouse advisors who are affiliating with hybrid-RIA’s at such a rapid pace? Vince Lombardi liked to say; “weather is a state of mind.” I imagine he believed the same was true of winning. Delivered as a group, the ingredients listed below represent more than the sum of their parts. They represent an organization that believes in itself, its mission, the business we all share and most importantly, financial advisors. They represent a state of mind, a desire to win. It’s a fairly simple recipe with five fundamental ingredients that are often hard to come by but if you want to bake this cake, here’s what it takes:

1. Money. No surprise here. 350% recruiting deals, while they last, are hard for any advisor to pass up, especially those needing a cash infusion. Holding aside the vagaries of those deals for a minute, the winners in this fight understand that big headline numbers sell and they’ve made strides to counter the lure of easy money (which, as Glen Frey famously noted, “has a very strong appeal.”) BD’s playing to win have created access to capital in a number of creative ways including upfront, forgivable notes, traditional loans for unlocking wirehouse retention, as well as access to working capital for advisor’s ongoing business needs. These are not 350% deals but smart advisors realize owning and controlling their book in combination with capital support amounts to being paid to create enterprise value for themselves. In this light, you have to ask yourself, is there another industry that offers a more secure way to start a business?frey resized 600

At the same time advisors must understand that independence is a true bottom line business; there is no “funny math” as may be the experience in big, top line oriented organizations. If advisors come to the table knowing that BD’s have a select number of financial levers they can pull to achieve a profitable outcome for both sides, and are realistic about their expectations, in most cases they will not be disappointed. Higher payout means breakeven comes quickly and after that it gets really interesting (read: fun). For their part, winning BD’s continue to work on finding creative ways of supporting transitions so that fewer advisors experience issues like insufficient lift-out capital for high performing teams or short term negative cashflows. These BD’s will ultimately win more than their fair share of the breakaway business and be rewarded over the long term for their efforts.

2. Service. Wirehouses may not be the most advisor-friendly places to work but over time they have set the bar for service (if not the expectation of service) very high. BD’s would be misguided to assume simply providing independence is a panacea for wirehouse advisor expectation. On exit, these advisors are looking for real execution on the many service capabilities they’ve been led to believe are possible. BD’s that maintain a service model that is flexible and adaptable, that treats individuals as such and avoids a one size fits all approach to risk and compliance policy will gain fast favor with former wirehouse advisors used to an impersonal bureaucracy. It may sound simple, but the perception that the BD wants to win, and views the advisor as a means to that end rather than a necessary evil is really the first test. Service is sometimes less about what’s being delivered than it is about how it’s being delivered. BD’s that are winning are not only proving to advisors that they care about and view them as individuals but are laser focused on adapting to increasingly sophisticated advisor skillsets and client demands while broadening the advisor’s ability to do more business- and do it more efficiently.

3. Technology. Perhaps the fastest way to add value to an advisor’s business in the independent arena today is to be a provider of superior technology solutions. Custodial technology has improved markedly in recent years but it isn’t sufficient as a total solution in a hybrid construct. Hybrid RIA’s will operate on both platforms more or less simultaneously. To win, BD’s must offer a platform that grants advisors a high level of technological competency and choice. BD’s are on notice that this is an area where, despite a series of stumbles, one or two wirehouses have been successful in adding value and raising the game. Advisors are encouraged to consider a BD’s reporting capabilities, trading functionality and the system’s intuitiveness, which can be spotty across the landscape. Defects in fundamental parts of a platform are easy to spot, as are BD’s supplying platforms that outperform their peers. When it’s good, BD technology is simple, clean and fast. When it’s bad, you’d rather stab yourself in the eye with a rusty spoon. Advisors should been keenly focused on the details of a BD’s offering and look for clues, not just about how it performs today, but what the BD’s commitment is to new and adaptive technology over the long haul. Is it viewed as simply a tool or is it an integral and sustainable part of the value proposition? BD’s that win will be committed to platform excellence and able to demonstrate that. They will outsource solutions often and seek the end-users’ contributions on builds to keep them logical and user-friendly. Surprisingly, big isn’t always better. Some smaller BD firms not bound by large legacy systems have made great strides in this area as a result of being nimble and focused. Several smaller firms have quietly achieved results that are worthy of examination.

describe the image4. Compliance. Here’s an area where BD’s probably can’t spend too much money, both on systems that help advisors to monitor themselves, and on talent that can take the often complex rules and regs and translate them into real world advice and thoughtful direction. There just isn’t a substitute for a compliance officer who is tough but fair, who advisors know is on their side yet won’t cave when push comes to shove. Above all else, advisors want to know that the BD’s attitude is business friendly, that it supports the goal of “how” and “if” ahead of “no.” For advisors out of the wirehouse, such interactions can be revelatory and for BD’s, as it relates to advisor satisfaction and loyalty, they are worth their weight in gold.

Very generally, a BD’s business is comprised of four simple functions: pay on commission business, handle oversight and guidance of advisors regarding their FINRA compliance obligations, deal with regulations and regulators directly and supply advisors with useful business data. The execution of these “simple” tasks is anything but simple and if you’re scoring at home you likely noticed that 50% of the above is compliance related. Advisors must come to the table with the understanding that “independence” is not synonymous with “whatever I want.” FINRA didn’t change its rules when you changed BD’s. That said, some BD’s handle compliance well while others, do not. And with FINRA’s various pressures making the “friendly BD” look increasingly like it is headed toward extinction, the act of choosing a compliance partner takes on an even greater significance. BD’s that will win are those that can literally and figuratively put a human face on compliance, deliver tough messages quickly with reasonable explanation, and live in the world of “how” when it comes to problem resolution and advice.

5. Culture. It may sound redundant but the BD’s that will win this fight have a winning culture. They aren't running the "prevent" defense. Culturally, winners of the BD fight are on their front foot. They recognize the hybrid landscape, that is to say, they understand the integration of the custody and BD businesses as well as the confluence of compliance, business growth, service and technology. Winners aren’t defensive, or reluctant. They’re not put out by your firm’s growth or evolution, they expect it and are excited about the fact that it pushes both organizations into new territory. They don’t hide behind regulations, legacy technology constraints, or fear of the unknown. They want to win, they want to tackle issues and get down the road, fast. A winning BD treats advisors like clients, a novel experience for most people leaving the wirehouse.

When advisors feel the synchronization of their aspirations with a BD that has a cultural drive to deliver solutions the clouds part, the sun comes out and the rest of it becomes working out logistics. In sum, BD’s that win have a culture that doesn’t insinuate itself or seek to control advisors’ businesses, instead it seeks to support, enable and facilitate, widening the advisor’s business through-put at every opportunity.

Winning the hearts and minds of the breakaways will require modern BD’s to be decathletes. Specialization in one or two areas likely won’t be enough to draw the dedicated attention of savvy advisors bent on exploring the full range of possibilities that independence has to offer. However, while the stakes have never been higher, neither have the rewards as the outflow from the wirehouses and subsequent growth of those who’ve departed shows no signs of ebbing. In most breakaway decision-making sessions the combination of the five fundamental ingredients listed here will rule the day, telling advisors they’ve found an ideal partner, or the contrary.

In the end, it's a beautifully complex cake- and the winners will get the biggest piece.

Topics: financial advisor, wirehouse, custodian, FINRA, independent advisor, RIA, hybrid RIA, breakaway, broker dealer

The Death of the Wirehouse?

Posted by Robert Bartenstein on Fri, May 17, 2013 @ 13:05 PM

Hasn’t it been fun over the last couple of years to observe the debate about the Death of the Wirehouse? Like the Loch Ness Monster, the end of the great beast has been alternatingly claimed and refuted ad nauseum by the media and “industry experts.”describe the image What? You didn't think we noticed?

Based on all of this noise, you might almost think that one morning we’ll wake up and the wirehouses will all just be… gone. In fact, when faced with the bank earnings news of last week, the great preponderance of assets still safely ensconced in their tall towers and the wildly large population of advisors still willing to put up with their service model, asking when or where the death of the wirehouse will occur is precisely the wrong question.

And if you look at the terrain today as supported by those earnings announcements, it would be easy to conclude that while the woods may be filling with Davids in the form of independent RIA firms ready to take on the wirehouse Goliath, the giant’s not only not dead, he’sdescribe the image getting stronger. After chowing down on cheap money and rising markets he appears wholly unimpressed with the threat the many Davids may pose. It's still true, as industry experts like Chip Roame of Tiburon Strategic Advisors point out, wirehouses still manage the bulk of client assets: $5 trillion in assets vs. $60 billion for the independent channel.

But really, who cares?  One of the great things about being independent is that I don’t have to give a damn about much that has to do with the wirehouses. I’m not a shareholder, I’m not in management, I’m not giving up 60% in the hope they do the right thing with it. I don’t have to worry about their quarterly numbers or what they need to do to avoid missing them. If Jamie Dimon starts another fire in his kitchen, I won’t get smoke inhalation. We live on the same street, not in the same house.

So here’s the bottom line about the question regarding the relative mortality of the wirehouses:  It’s the wrong question.  The right question is, at this point, what can stop the rise of the independent RIA?

The answer seems to be, nothing.  The independent RIA space has sufficient critical mass and a superior model on its side, and this will keep the growth strong regardless of how well or poorly the wirehouses fare in the future.

When considering that future, consider these facts:


  • Tyler Cloherty, associate director at Cerulli Associates said in a statement "The growth of the RIA and dually registered channels is likely to continue to accelerate due to advisor movement and client choice."


  • Levaux notes that "in 2010, there was about $1.2 trillion in RIA assets for client accounts managed by roughly 27,930 RIAs. In 2011, that figure rose to about $1.4 trillion and 28,715, respectively. RIA-channel growth is outpacing the broader industry, the recent Cerulli study found. This growth is being spurred by strong advisor recruitment, breakaway advisors leaving wirehouse and other traditional firms to create their own independent firms, and a growing client preference for RIAs."

If wirehouses were growing market share like RIA's there wouldn't be enough air in the room to talk about anything else. That RIA's are experiencing such growth is a simple testament to how ownership changes and empowers advisors when they set their experience free.

In an effort to make their math work, the wirehouses say they are engaged in a large scale reorg of clients and advisors. In so doing they are unwittingly creating textbook independent practices: high gross businesses with low numbers of clients, run by highly skilled advisors with loyal clientele. And the more they imitate our space, the better positioned we are for continued advisor growth and client capture. 

Just think about where these big firms are coming from. Imagine a typical 40-50 advisor wirehouse office, post-merger, some of it empty, most of the remaining space filled with describe the imageunderperforming advisors… It’s more of a nightmare for these firms to deal with half empty than fully empty offices that leave people out of the equation. It’s almost certainly true that some of the market share shift is a direct result of the wires trimming out smaller producers and offices in order to reduce costs and increase efficiencies across their platforms. Given the amount of slack in the systems post-financial crisis, this makes sense.

According to a recent Reuters story, industry analyst Brad Hintz of Sanford Bernstein (whose work I have long respected) believes: The wirehouses should prosper because they are selling "complex, higher margin products like alternative investment vehicles and structured products, giving them a significant profitability advantage over firms in other channels.” Notice he didn't claim wirehouses have greater access to these products, just that they'll sell more of them.

In other words, wirehouse advisors will continue to have wealthier clients who will continue to have access to (aka, be sold) higher margin alts and structured products. While I’m sure said clients are relieved by this development the idea that the wirehouses are happy and willing to cede market share strains credulity. That’s never been their MO and it ain’t starting now. Makes for a good excuse though. Winning? Nope.

The fact is, whether they mean to or not, wirehouses are trying to survive by looking more describe the imageand more like independent RIA firms internally.  Death of the Wirehouse?! Pishaw! Wrong question. For RIA’s, that's like Christian Louboutin worrying about the death of Nordstrom's. 

Here’s what the wires may be missing in this strategy. I know they don’t believe it, but it gets easier every day to go independent. The technology is better, the custodians are better, oh, and most importantly, clients are buying in.

Witness one conclusion from the Cerulli report cited by Andrew Osterland of Investment News: “RIAs [as a channel] are actually getting more of their growth from new and existing clients than they are from new advisers becoming RIAs. In 2011, $118 billion of the $232 billion increase in assets in the RIA industry resulted from new and existing clients contributing more money, while $90 billion resulted from advisers becoming RIAs. The markets accounted for $23 billion in growth. “The organic growth has been a bigger driver than adviser movement,” said Mr. Cloherty. “RIAs are getting a lot of new clients and a lot of new money from existing clients.” BAM!

When I was in management in the wirehouse world we constantly struggled to reverse what looked to be a 10 year downtrend in growth of new assets… not a problem in the RIA world, clearly. Why is this happening?

Osterland writes “Mr. Cloherty attributes much of the growth in the RIA channel to the desire of wealthy investors to diversify their relationships with financial advisers since the financial crisis. The average number of advisers for nearly 8000 households surveyed for the report rose from .7 to 1.2 advisers -- not including 401(k) providers, between 2008 and 2012. For households with more than $5 million in investable assets, the number of adviser relationships rose from 1.4 to 2.3.

Mr. Cloherty said the trauma of the financial crisis led to a lack of trust in investors' existing advisers, and that triggered a desire to have multiple advisers compete for the investor's assets. He thinks wirehouse advisers have been hurt the most from that trend and RIAs have been the biggest beneficiaries. He expects, however, that the trend may now be peaking and that investors will look to consolidate their business with fewer advisers over the next several years.”

Clients now have more advisors per person than they have had in some time. Who will win in the next consolidation phase? No one knows. Yet I have to believe that if clients are moving accounts to advisors who can offer unconflicted and unbiased investment options because of a “lack of trust in their existing advisers” you have to like the chances of this new breed of advisor, the same folks who have overseen a doubling of the market during their time at the helm. None of this is good news for the wirehouses, despite their still dominant share of assets and advisors.

So this debate about the demise of the wires grows stale. They're likely to be with us for some time. Either way, those of us in the independent RIA business will get out of bed tomorrow with the intent to build for our clients a vastly superior, conflict free, solution, because we can. This channel literally represents the best “Wall Street” has to offer, not the best of a single firm- THE critical distinction in the eyes of our clients.  

So for all the cited reasons the breathless debate about the life or death of the wirehouses just isn’t that exciting anymore. I guess if you somehow still need to care, buy the stock. It’s as close as you'll ever get to ownership in that model.




Topics: financial advisor, wirehouse, independent, independence, custodian, going independent, brokerage, independent advisor


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