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361 Capital Weekly Research Briefing

 

361 Capital Weekly Research Briefing

361 Capital portfolio manager, Blaine Rollins, CFA, previously manager of the Janus Fund, writes a weekly update looking back on major moves, macro-trends and economic data points. The 361 Capital Weekly Research Briefing summarizes the latest market news along with some interesting facts and a touch of humor. 361 Capital is a provider of alternative investment mutual funds, separate accounts, and limited partnerships to institutions, financial intermediaries, and high-net-worth investors.

361 Capital Weekly Research Briefing 
January 20, 2014

Timely perspectives from the 361 Capital research & portfolio management team

Written by Blaine Rollins, CFA



You know that the Bulls are in control when the Bears are going in for MRIs…

(BigStoryAP)

Several large equity indexes again set new 52 week and/or all-time highs this week…

While the economic data and news slighted positive for the week, it is really earnings which are driving the individual stock movements and thus the sectors.

(TheFatPitch)

The first week of earnings was a mixed one with items for both bulls and bears…

Here are the charts of the stocks that reacted positively toward their earnings announcements. (Lots of financials only because it is a big reporting week for the banks/brokers.)

 

There were also an equal number of companies that didn’t live up to expectations and the stocks were clipped…

…like SLM, CSX, AA, COF, FAST, C, PBCT, INTC, BK, MTB, UNH, HBAN and GE. I am paying close attention to how these stocks act in the weeks after their earnings. If the stocks get bid back to their pre-disappointing earnings level, then it will be another sign of strength in the market. Alcoa and Fastenal disappointed earlier in the season and we can see that they were both quickly bought up (especially AA!). So put the biggies like CSX, C, INTC and GE on your screen to watch their direction this week.

For the week, Earnings dominated and some of that showed up in the underperformance of the cyclical stocks…

More broadly, risk buying remains evident via the outperformance of Biotech, Small Caps, Europe and Maker’s Mark…

Here is a look at where the big money was hunting in the last 6 days…

Plenty of interest remains in the Health Care sector and those companies putting up big quarterly earnings…

(Click here for the full market cap list)

Contrarians take note; the research houses dislike Fixed Income, Asian Equities & Emerging Markets in 2014…

(MebFaber/BlackRock)

One area they do like is UK equities and their economy is now helping that call…

@ReutersJamie: Staggering UK retail sales figures, +5.3% in December, the fastest annual rise in 9 years

Here in the U.S., the monthly JOLTs data finally saw a return to 4 million job openings…

Jobs openings increased in November to 4.001 million from 3.931 million in October. The number of job openings (yellow) is up 5.6% year-over-year compared to November 2012 and this is the first time job openings have been above 4 million since 2008. Quits increased (updated) in November and are up about 13% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for “quits”).

(CalculatedRiskBlog)

And for another sign of sound Financial strength in the U.S…

The Bloomberg index of financial conditions is at an all-time high, which suggests that financial markets haven’t been this healthy for the past two decades. This index is composed entirely of real-time measures of market sentiment, risk aversion, liquidity, credit risk, and profit expectations. No seasonal adjustment factors were used in the manufacture of this index, and no revisions will ever be made to the data. This index has a good record of leading economic conditions in general, and currently it is saying that there is virtually no risk of any significant economic disruption on the horizon.

(CalafiaBeachPundit)

If you are a Bear (not in an MRI) looking for fresh meat, Brick and Mortar retail is the newest buffet after the Best Buy disaster last week…

The Census Bureau reports that the four specialty retail categories representing total sales of just over $600 billion grew by only $5 billion between 2007 and 2011 (the last date that this level of detail was reported). That’s less than one percent over four years. The e-commerce players increased their cumulative sales in these categories by $35 billion over the time period. This means that the cumulative sales of brick-and-mortar retailers shrank by $30 billion in just four years!…

(JeffJordan)

The shift in the 2013 holiday shopping season not only caught UPS by surprise…

Retailers got only about half the holiday traffic in 2013 as they did just three years earlier, according to ShopperTrak, which uses a network of 60,000 shopper-counting devices to track visits at malls and large retailers across the country. The data firm tracked declines of 28.2% in 2011, 16.3% in 2012 and 14.6% in 2013. Online sales increased by more than double the rate of brick-and-mortar sales this holiday season. Shoppers don’t seem to be using physical stores to browse as much, either. Instead, they seem to be figuring out what they want online then making targeted trips to pick it up from retailers that offer the best price. While shoppers visited an average five stores per mall trip in 2007, today they only visit three, ShopperTrak’s data shows.

(WSJ)

And brick and mortar retail will not get any help from the weather this week. You can just hear Bezos laughing…

The polar vortex will get stronger and move farther south later in January, causing cold to intensify in the Midwest and East and drought to build in California and the West. As the pattern responsible for rounds of nuisance snow and waves of cold air continues into next week, indications are that bitterly cold air will return later in the month courtesy of the polar vortex. There is the chance the cold may rival that of early January in some areas.

(AccuWeather)

The same weather pattern is leaving California dry as a bone. Get ready for several threads of inflation this summer unless it rains soon…

Cattle ranchers have had to sell portions of their herd for lack of water. Sacramento and other municipalities have imposed severe water restrictions. Wildfires broke out this week in forests that are usually too wet to ignite. Ski resorts that normally open in December are still closed; at one here in the Sierra Nevada that is open, a bear wandered onto a slope full of skiers last week, apparently not hibernating because of the balmy weather. On Friday, Gov. Jerry Brown made it official: California is suffering from a drought, perhaps one for the record books. The water shortage has Californians trying to deal with problems that usually arise in midsummer.

(NYTimes)

Goldman Sachs’ average comp per employee was -4% year over year. Salt Lake City is a BIG reason why…

New hires in Salt Lake City cost 30 percent less, on average, than employees in the same roles in New York, according to a consultant who has helped grow Goldman’s Utah operation but was not authorized to talk to the press. A Goldman employee fresh out of college in Salt Lake City, for example, might earn about $45,754 a year, on average, while those in New York earn about $67,334, according to jobs website Glassdoor.com. The cost of living in Salt Lake is also lower: The median home value there is $256,800, while the median home value in New York is $502,600, according to a home value index from the real estate website Zillow.com. The site’s rent index shows Salt Lake City at $1,337 per month, compared with $2,128 per month in New York…

Goldman plans to add at least another 200 Salt Lake City employees in the near term, and is rethinking which jobs can move to places like Utah. “Salt Lake City is becoming huge,” said one person familiar with the bank’s thinking. Other lower-cost offices are growing too, but the rate of growth could not be learned. It is also working as an effective bogeyman to scare bankers that are early in their careers, an insider said. Late at night, when junior bankers in New York complain about the long and grueling hours, they are jokingly reminded that their job can be moved to Salt Lake City, where people will happily pick up the slack. And suddenly, the whining stops, the insider said.

(Reuters)

Note to Canada: Too much Household Debt and falling Real Estate prices can be bad. Really, really bad…

7.5% of the Canadian workforce is in the construction industry, while 7% of the Canadian economy is based on residential construction — both record highs;

The latest Canadian jobs report was dismal, as its economy shed 45,000 jobs in December, and the unemployment rate rose from 6.9% to 7.2%; and…

(TIME.com)

Deal of the Week… Google buying Nest. (FD: I am a very happy Nest customer.)

CES may be finished for another year, but one of the biggest themes of the show — that anything (cars, watches, mirrors, tables, whatever) can be ‘hardware’ — is just taking off. And today’s news of Google buying Nest for $3.2 billion underscores how Google wants to be the player at the front and center of hardware. Google’s Nest buy may not be giving the search giant access to all the data that zooms across Nest’s apps, thermostats and smoke detectors (for now at least), but it will give Google something else: top-shelf design expertise for that next frontier of hardware, by way of a team of people brought together by two senior hardware veterans from Apple, one of whom is known as the father of the iPod. This is a significant turn of events for Google.

(TechCrunch)

But, I was told that Chicago hockey parents are the best…

(@TheRealChuck84)

Tweet of the Week…

‏@Will___Ferrell: I’ll tell you what a woman wants. She wants you to drag her to the bedroom, toss her down,and do the dishes and laundry while she takes a nap.

Finally, here is proof that the world of surfing photography just became disrupted by a Drone with a GoPro camera…

(TheNextWeb)

Ending with a ‘Guess the Chart’…


In the event that you missed a past Research Briefing, here is the archive…

361 Capital Research Briefing Archive

The information presented here is for informational purposes only, and this document is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities. Some investments are not suitable for all investors, and there can be no assurance that any investment strategy will be successful. The hyperlinks included in this message provide direct access to other Internet resources, including Web sites. While we believe this information to be from reliable sources, 361 Capital is not responsible for the accuracy or content of information contained in these sites. Although we make every effort to ensure these links are accurate, up to date and relevant, we cannot take responsibility for pages maintained by external providers. The views expressed by these external providers on their own Web pages or on external sites they link to are not necessarily those of 361 Capital.

Blaine Rollins, CFA, is managing director, senior portfolio manager and a member of the Investment Committee at 361 Capital. He is responsible for manager due-diligence, investment research, portfolio construction, hedging and trading strategies. Previously Mr. Rollins served as Executive Vice President at Janus Capital Corporation and portfolio manager of the Janus Fund, Janus Balanced Fund, Janus Equity Income Fund, Janus Aspen Growth Portfolio, Janus Advisor Large Cap Growth Fund, and the Janus Triton Fund. A frequent industry speaker, Mr. Rollins earned a Bachelor’s degree in Finance from the University of Colorado, and he is a Chartered Financial Analyst.

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

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

 


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.

 

describe the image

* 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."  

 

 

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

WWM's SoCal Market Director Goes The Distance

 

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.

 

 

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

The Battle For Breakaways- Five Ingredients for a Winning Recipe

 

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.

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

The Death of the Wirehouse?

 

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.

 dimon

 

 

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

Worry, But Be Happy. 10 Things Financial Advisors Should STOP Doing

 

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

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 Hayden’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 Hayden 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 Hayden 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 Hayden’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. You want to judge the rest of us cretins for clinging to our guns and gross, go ahead. 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 need reason to modify what Jeff wrote here. The rest is pure Hayden. "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."

Hayden'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 together. 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 Hayden's full article is attached here. http://www.inc.com/jeff-haden/how-to-be-happier-work-10-things-stop-doing.html

 

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

Washington Wealth Welcomes Newest Advisor Team, PSM Wealth Management

 

People Moves:

Morgan Stanley Team Jumps to Indie Shop in Calif.

By Tom Stabile

March 19, 2013

FundFire

A Morgan Stanley Wealth Management advisor trio that ran $160 million in client assets left the wirehouse last week to join Washington Wealth Management, an independent advisor platform that recently signed a new brokerage relationship with LPL Financial.

Janet Pearce, Bradley Saunders, and Krista Murray left to set up a new office with Washington Wealth in Brea, Calif., about 10 minutes from Anaheim in Orange County. Saunders had been with Morgan Stanley since 1991, Pearce since 1992, and Murray since 2005, according to Financial Industry Regulatory Authority records.

The new office is designed to house three advisor teams, which Washington Wealth expects to recruit in the region. The outfit – which according to Securities and Exchange Commission records runs more than $560 million in assets – already has several other offices on the West Coast, including the Los Angeles, San Diego, Las Vegas, and Seattle markets.

“Washington Wealth Management views the Orange County region as a tremendous area for growth, and the new Brea office includes space for two additional teams,” a spokesman says. “[The firm] is off to a fast start in recruiting advisor teams in Southern California, and expects this momentum to continue throughout 2013 and beyond.”

Under the firm’s model, the new team is an independent practice with its own management structure, but relies on the support services built by Washington Wealth and overseen in the region by David Richman, market area director for Southern California.

Saunders may assist on some of the recruiting effort for additional teams, after having served as regional director for Morgan Stanley for its Southern California and Las Vegas markets.

Washington Wealth has also built a presence in other regions, including its headquarters in Middleburg, Va., and in the Miami and Westport, Conn., markets.

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

Who Loves FINRA’s Proposed Rule On Disclosure of Recruiting Bonuses?

 

 

robworkWhen FINRA rolled out Proposed Rule 13-02 a lot of people in our business freaked; advisors were indignant, recruiters were petrified and branch managers were either quietly cheering for it or arguing about how their firm would find a way to work around it. As you may have heard, 13-02 is the rule that would require any advisor who received a recruiting bonus over $50,000 to disclose it to clients prior to soliciting their business at the new firm. The rule, as presently constituted, is pretty solid on what forms of enhanced compensation would fall under its purview, call it ALL of them, and is equally tough in the level of detail the advisor would be required to divulge, call it ALL of it.

After you’ve negotiated your deal with the new firm and made your move, you’d have to tell your clients about the specifics of the deal, orally or in writing. It might go something generally like this:

(Ring ring) “Ms. Smith, I left the old place for the new place and was given $1.6 million up front with the chance to earn another $2 million over the next few years, etc.…but here’s why I decided to make the change.”

 Chilling effect? Oh, I think so. Talk about some inconvenient truths. Does the client even hear anything you say after that first sentence? It would be hilarious if it wasn’t so immediately real. As advisors we worry enough about client perceptions to understand the bombshell this sort of forced disclosure represents, and we used to think fee discussion were hard? Worse, it’s certain to reverberate through your whole business in about three point six million ways; “you want me to pay that $150 fee? Why don’t you pay it, I’m not the one who got paid millions to make this move….” Pleasant.

describe the imageSo with the obvious damage the rule would do to the cause of the wirehouses in The Great Recruiting Wars, would it surprise you to know that it’s the wires themselves who’ve quietly sent the signal that they want, no mas?  Seriously, like Lindsay Lohan reluctantly slipping in the back door of a treatment facility, the industry is acknowledging that it has a problem it can’t solve on its own. The brokerages’ main lobbying groups, the Securities Industry and Financial Markets Association (SIFMA) and National Association of Insurance and Financial Advisors (NAIFA), both responded to FINRA during the comment period by essentially asserting that “recruiting bonuses don’t always present a conflict of interest” (emphasis added) according to a recent article in Investment News by Mark Schoeff.  Well, if they don’t always present a conflict of interest, then it’s safe to assume the industry is acknowledging that recruiting bonuses DO present a conflict of interest sometimes. In any case, it wasn’t a defense at all, it was an admission, an acquiescence, an implicit agreement with FINRA that the practice should be curbed.

Schoeff quotes Ira Hammerman SIFMA’s MD and general counsel as denying wirehouse influence had anything to do with the lobbying group’s position, instead, Hammerman wrote, “SIFMA’s position on this proposal is based upon the guiding principle that retail customers should have the benefit of disclosure of material conflicts of interest.”Schoeff further quotes Hammerman as writing “In the context of recruiting-related bonus payments, the most important and relevant information for the client is to understand the potential conflict of interest associated with the payment.” That’s pretty direct.

For its part, Cornell Law School also submitted a comment letter appropriately noting that the SEC already requires disclosure of any conflicts , including those resulting from a move. Cornell asserts that if SEC mandated disclosure “helps to protect an RIA’s clients, it will also help protect a RR’s clients (if FINRA made a similar move).”  

The foundation of all of this is that the construct of closed operational platforms (read, wirehouses), a product of history and highly irritable compliance attorneys, make advisors and their clients captive to the solution set of single entity. This can result in conflicts most advisors don’t see and are largely unaware of.  Simply put, “open architecture” is a concept, not a fact and as they say about those TV diet pills, your results may vary. Ever heard the terms; “non-compensable revenue” “revenue premium” or “pay to play?” Ever been told you can’t discount something, can’t use that portfolio manager, can’t sell that mutual fund- but you can sell this one, have to use this mortgage company or that lending facility, sold some prop product…. The list goes on. At any one point in our careers we can literally be a walking conflict of interest. So when a big bank buys you with an upfront check with all the back end bells and whistles, they aren’t just buying you for your stated revenue, they’re buying you for the ancillary revenues your business provides, most of which you never see or participate in. Hell, even the very existence of the recruiting process itself creates conflicts where there wouldn’t have been any before. Ever hear someone say they wanted to get their production up before making a move? How does that happen exactly, is there not a conflict there?

Add it all up and the wirehouse knows it has a problem when it sits down with FINRA’s lawyers, many of whom the regulator has hired from the Southern District of NY. Those folks DO see the conflicts, they DO know the business and they’re not going to let it slide, especially when brokers are being “induced” to move by 350% deals. So the good news is that between SIFMA and NAIFA’s collective comments it’s clear that the wirehouses are trying not to have an Amy Winehouse moment, they actually do want to go to rehab, but torturing the metaphor a little further, when everyone in the room has a recruiting gun pointed at everyone else, who puts theirs down first? Cue that regulator…FINRA can now jump in like Judge Rhinehold in Beverly Hills Cop yelling for everyone to “DROP IT!” and that’s what they’re likely to do, and what the wirehouses seemingly want.

Despite the short term pain for advisors who miss the window to make a move without required disclosure (and really, can there be that many left at this point?) passage of the rule may have long-term benefits for most. Advisors routinely tell us that they never see their manager anymore- that he or she is always out recruiting or occupied with other items on the corporate agenda. If this rule has the chilling effect on recruiting that most agree it will, wirehouses may be forced to rationalize their recruiting goals and techniques. The momentum will shift to recruiting your own advisors first, aka, retention. That’s a good thing for advisors who have watched a generation or two of good managers, operators who knew the business of getting and retaining clients, get blown out to make way for the cohort of managers who specialize in outbound recruiting. It may also go a long way toward renewing advisors’ faith that the 60% of the revenue they send to the big firm will actually be spent in ways that directly benefit them. Yet big firms are slow to change and, as in any great war, there have been a tremendous number of casualties within those organizations over the last decade that will fundamentally alter the coming time of (relative) peace. Retraining, retooling and re-equiping the branch manager will be no easy task, especially for firms who have demonstrated an apathy or outright contempt for the skillset an era of organic growth will require.describe the image

Personally, I welcome the proposed rule. First, because we are engaged in growing a conflict free business and competing with 350% deals is really dang tough. Too often we hear, “sorry, I just can’t say no to that kind of money.” Second, because I fundamentally believe that clients and advisors win in an open, multi-custodial setting, where ALL of The Street’s best ideas are available to advisors and clients at competitive market driven rates, versus the captive platform and pricing of a single firm. Third, because I believe ownership and creation of enterprise value (two things currently impossible in the wirehouse system) are the path forward for advisors, not the gambit of the Big Check.

In a world of mandated disclosure I look forward to our advisors relating to clients the exact nature of their transition assistance versus the costs to make the move and establish their own business, with all of the virtues that then flow to the client as a result. I’m confident their experience will be no different than it is for our current new advisors who are always surprised to hear their clients consistently asking them, “What took you so long?!”

 

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC.

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction.

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

Financial Advisors and Independence; The Good, The Bad, The Ugly

 

This is the second in a three part series designed to help advisors who are considering making a break for the independent space. It is by no means exhaustive, but should get your wheels turning. We’ll keep cranking out the info as long as you want to keep reading it.


eastwood good ugly"Two hundred thousand dollars is a lot of money. We're gonna have to earn it."

-Clint Eastwood as Blondie, The Good, The Bad and The Ugly

 

Part 2: The Bad

As the CEO of a firm engaged in helping financial advisors leave the big brokerages and go independent, I spend much of my time listening to advisors tell me what's wrong with their current firm. Many of the stories are familiar, or painful, or both. Some of the stories are funny in that they show an industry segment increasingly divorced from the reality that advisors now have an abundance of other options, and some are so whacked out it's hard to imagine they can occur in any professional environment, much less one as regulated as our business. In the end, they all lead to the same place, frustration. Frustration leads to a breaking point, and once that happens...well, it's time to get out of Dodge, or at least evaluate your options like so many are, http://www.investmentnews.com/article/20120122/REG/301229984

The Check. If you've come here looking for what Tom Petty called "The Big Get Even" then you've come to the wrong place. 350% deals simply don't exist in the independent space. That’s a shame, right? After all, we’ve been conditioned to ask how much anyone would pay us to make a move, not whether they'd pay us at all. We'll save the tedious examination of The Check economics for another time-but just ask yourself; are you inclined to be the owner or the owned?

The wirehouse packages offering a few hundred percent certainly have some appeal. Namely, a $1.4 million (140% up front on $1 million of production) bird in the hand can go a long way towards allowing an advisor to relax about the unpredictability of the future. That money in the bank is real, it earns some interest, it’s a nice, big, number. Half of it will eventually go to pay taxes but it makes for a beautiful headline and it feels great- for a while. Add to that the psychic reward of being courted by another firm with all the trappings that involves along with the natural optimism most of us carry about a new start with new friends and you have an attractive scenario.

Yet along with the obvious sizzle that goes with “selling your book” comes some nagging questions about who these transactions really help. Do they help the client, the advisors, or the big banks more? Doe they increase or decrease your freedom as an advisor? As to their wealth effect on real people, I know very few people who’ve created lasting wealth for themselves in these deals. I know many more who’ve been hurt by them; lifestyle, lost business, taxes, bad investments, etc. all playing a role. I’m not blaming the banks, or the deals for that matter, just noting that the outcome is very often advisors who feel like indentured servants, trapped until some point in the future when their “deal expires.” That’s a sad way to live in a profession that has the potential to offer so much freedom. Meanwhile, if you look at your book, many of your clients are able to be your clients because they decided to dedicate themselves to starting and running a business that became successful. Said differently, they own something. Instead of selling your book, consider what your life would be like if you owned your book?

So while the absence of outrageously tasty upfront capital may appear to be a negative, think of it as a way of keeping all but the most dedicated out of the space while maintaining your ownership of your business. After all, who is going to pay anyone an exorbitant sum to start their own business, retain the lion's share of the profits and all of the long-term enterprise value? http://www.riabiz.com/a/17366656/how-the-luminous-deal-is-rocking-the-recruiting-world----and-may-set-the-stage-for-more-fireworks No one, and you wouldn't own it if they did.

It's a DIY World. Don't be afraid of the curve, the learning curve that is. By definition, moving anywhere is going to take you out of your comfort zone. Moving from wirehouse to wirehouse is akin to moving state to state in the US. The people in the new state may be a little unfamiliar, their accent may be different, but they still use dollars to transact business and they speak English. Moving from a wirehouse to independence can feel like moving to another country. The language is different (custody charges instead of payout), and the currency is different (AUM instead of revenue). Add to this that while things are ultimately going to be much simpler, and dare I say, fun, it may not feel that way at first. Going independent is likely to produce some culture shock related to the DIY (Do It Yourself) nature of the business. DIY means work, like learning a new language, but it comes with benefits like a greater share of the revenue pie along with pricing and brand control. Your manager talks about "building your business" but out here, you literally do.

As a dual registered, hybrid independent advisor you have at least two big early decisions to make; selecting a broker dealer and a custodian. These are crucial decisions replete with nuance so move deliberately, get references, work your network, ask questions early and often. With the wirehouse walls gone you may find yourself marveling at how intricate the regulatory and operational ecosystems are, I still do, and I have a grudging respect for my former firms' abilities to sew the parts together into a workable solution. (I don't miss the one size fits all solution they created to deal with these issues but hey, life is full of little trade-offs...) The effort to learn the ropes is worth it, however, if you plan on owning your business for the long run.

This brings me to my last point, you'll find it easier if you're willing to learn the operational, compliance and tax aspects of the business, but if you don't feel comfortable going it alone, fear not, there's still hope for your dreams of independence. Consider hiring an advisor/partner by tucking in with one of the many aggregator firms, http://www.financial-planning.com/blogs/mindy-diamond-break-away-advisors-due-dilligence-2680573-1.html a local shop that's well established, or using a consultant. Their collective trial and error is leverageable and will save you a lot of headaches, along with a lot of money.

Certainly, much of the good, the bad and the ugly of independence remain a matter of opinion and perspective. What may appear to be a negative for some looks like opportunity to others who truly seek the freedom and rewards that come with ownership. It's not for everyone, but for captive wirehouse advisors with the right skill-set independence remains the sole source of complete freedom for you and your clients. If you believe you've got what it takes, don't be afraid to saddle up and decide who to ride with.

Next up- The Ugly.

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

Financial Advisors and Going Independent: The Good, The Bad, The Ugly

 

This is the first of a three part series designed to help advisors who are considering making a break for the independent space. It is by no means exhaustive, but should get your wheels turning. We’ll keep cranking out the info as long as you want to keep reading it. 


eastwood good ugly"Two hundred thousand dollars is a lot of money. We're gonna have to earn it."

-Clint Eastwood as Blondie, The Good, The Bad and The Ugly

 

Part 1: The Good

As the CEO of a firm engaged in helping financial advisors leave the big brokerages and go independent, I spend much of my time listening to advisors tell me what's wrong with their current firm. Many of the stories are familiar, or painful, or both. Some of the stories are funny in that they show an industry segment increasingly divorced from the reality that advisors now have an abundance of other options, and some are so wacked out it's hard to imagine they can occur in any professional environment, much less one as regulated as our business. In the end, they all lead to the same place, frustration. Frustration leads to a breaking point, and once that happens...well, it's time to get out of Dodge, or at least evaluate your options like so many are, http://www.investmentnews.com/article/20120122/REG/301229984

But, as you consider whether a move to freedom makes sense I encourage you to internalize this thought; independence is not a panacea that painlessly cures the ills of the wirehouse. At times it can feel like the the frontier, meaning that while there certainly are gold mines, open fields and unfettered opportunity, there are also highwaymen, houses of ill repute and a lot of uncharted territory. Yes, out here the payout is higher, but it comes at a cost. If you're not ready to earn it, better to swallow your pride and stay in town. Here's the good, the bad and the ugly about going independent.

Control. No one, including anyone in your current management structure, knows more about your clients, what they need and how to serve those needs, than do you. In the independent space that knowledge means you can tailor your offerings and services to suit your clients' needs; custody, commission charges, software, technology, real estate, etc, are all a la carte decisions made by you. Simply put, as opposed to handing over 60% of your revenue and hoping for the best, you pay for what you use and no more. Ever wonder if you could do a better job with that 60%?

Freedom To Be You. So often advisors find themselves chaffing against strictures designed to keep the one bad apple from spoiling what's left of the wirehouse's bunch. This unfairly limits the large number of really talented advisors. No matter how qualified you are, how experienced or knowledgeable, your best twitter option is often a canned tweet written by someone else. And yes, you can use LinkedIn, but only in a certain way and forget facebook, a tv ad, an interview with Bloomberg radio, and the list goes on. The point is, it's their brand not yours, and they don't want you muddying the branding waters with people they perceive to be their clients. Reality check, your clients are with you because of you, not because they are loyal to the big firm. There's been a slow, decade-long march to big firm brand oblivion and unfortunately, you've been along for the ride. There's a reason that breakaway advisors retain 75%-90% of their clients in a move. Imagine how well you could communicate your value with your own brand, logo, website, social media, blog, white papers...and the list goes on.

Investment Choice. You may not have a keen sense for how custody works in the independent space (a story for another time) but I'm sure you can see the value of being able to choose your custodian; examples include, Fidelity, Pershing, TD Ameritrade, Schwab, LPL and others. It feels great to be the client. Custodians all have their relative strengths and weaknesses, but they exist to win the battle for your attention and your clients' assets. Partner with the right one and they will deliver value-added services like you won't believe. Need a Bloomberg machine, they can help. Want to develop a marketing campaign for your proprietary options strategy, access to research, golf tickets...? If one custodian fails you, mistreats a client, or cannot accommodate your needs, you move. One good custodian in your life is great, but two can be even better. The "multi-custodial” approach is still a relatively new approach to most advisors (and most custodians), but if you believe in the value of competition, or just need a specific expertise for a portion of your business, having the flexibility to migrate assets to competing platforms endows your business with great power, and your client is the ultimate winner. In addition, you'll have access to all of the investment products each custodian can provide (including perhaps, those of your former firm) with superior pricing.

These are just three broad characteristics of what's GOOD about independence. If you have specific questions you'd like to see addressed here, or answered privately, feel free to contact me.

 

Next up, THE BAD.


Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free.

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction.

 

Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com

No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction

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