This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
“Everything that can be invented has been invented.”
In 1889, the then-commissioner of the United States patent office, Charles H. Duell, foolishly declared his ability to definitively see the future.
This quote came to mind as I read an email critiquing me for my recent article about wirehouse brokers potentially losing their ability to self-manage assets on a discretionary basis.
While my ego relishes in having expanded my voice to where I am trolled occasionally, this emailer said that what I was cautioning about “would never happen.”
Charles Duell would be proud of such a confident view of the future.
Ironically, this emailer (upon a quick BrokerCheck search) has been in the industry for over 30 years, entirely in the wirehouse model. He has seen countless, often unforeseen, changes over his tenure in the industry:
- Anyone remember when there were only A, B and C mutual fund share classes? Consider the dozen-plus share classes today, with the once-common B-share all but extinct.
- Once, “deferred comp” wasn’t chiseled into compensation plans. The grid didn’t penalize smaller accounts, force the cross-selling of bank products, and effectively require “teaming.” Have you read a comp plan lately?
- Remember when the “Merrill Lynch rule” allowed brokers to offer fee-based accounts without being subject to the Investment Advisers Act? A distant memory.
- The good ole days were filled with proclamations that large “corner-office” wirehouse advisors would never go to the RIA model. Billion-dollar teams routinely now make the jump.
- Stocks were quoted in 1/8ths of a dollar!
- The independent broker/dealer model went from the dumping spot for “advisors who couldn’t cut it at the wires” to proving that theory entirely wrong, to coming full circle and being threatened with their advisors leaving for the next generation of independent solutions.
- Anyone remember when Merrill Lynch wasn’t part of Bank of America? Or Smith Barney held its own? How about that AG Edwards firm, whose existence is a full two degrees now removed?
- Bear Stearns, anyone?
Can’t think that far back? How about the sterling reputation of First Republic?
No one can predict the future. I can’t and don’t claim to be able to.
That doesn’t mean we can’t (and shouldn’t) make observations about how the advice industry could evolve. It is an instructive exercise to do yourself as you do long-term planning for your practice.
History has taught us that making predictions with absolute certainty is a losing hand. There are no immutable paradigms in our profession. Some outcomes are more likely than others, but declaring that something will “never” happen is dangerous.
Trading equities in 1/8s lasted for over 200 years. Even that wasn’t long enough to fend off the forces of inevitable change.
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development, to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.
Read more articles by Brad Wales
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
