By Cyril Tuohy
Depending on your point of view, most financial advisors have changed in one of two ways over the last 30 years.
They have either:
- Blossomed into genuine sources of advice, developing holistic planning programs to take clients far into seemingly ever-extending retirements, or
- Descended into the mosh pit of sales, moving whatever fund, security or annuity to whomever, with little regard for client needs or the structuring of long-range strategies.
The former point of view posits that advisors have retained the trust of clients and taken back the mantle of stewardship that guided many long-gone investment boutiques, which once populated Wall Street and whose principals subscribed to a fiduciary calling.
The latter view holds that advisors have lost the trust of Main Street investors, because the professionalism that once guided stewards of wealth has withered into a free-for-all of intermediaries feeding off the hard-earned dollar of the American worker.
Which is it? Take your pick. You’ll find plenty of big names holding either perspective.
If you subscribe to the first view, go have a drink with John Taft, chief executive officer of RBC Wealth Management and former chairman of the Securities Industry and Financial Markets Association. He will tell you all about how far the financial advice industry has progressed.
Taft has been in the industry for almost 35 years. He believes that anyone who has been around the industry that long will appreciate how far the industry has traveled and how well the old stockbroker has transformed into an investment advisor and, today, a holistic wealth manager.
“My money is managed holistically,” Taft said in a panel discussion earlier this month on restoring investor trust in Wall Street, which was sponsored by the Institute for Fiduciary Standard. “There isn't anything that I do in my financial life that isn't managed by a team of female advisors at my firm. They are quintessential professionals.”
The fact that women populate the financial advice industry — although, perhaps, still not enough — is an indication of the progress the investment and advisory world has made, he said.
Taft said his advisors start with a long-form planning process. They ask clients where they see themselves in 20 or 30 years, what their goals are, how high their risk tolerance is, and who they want involved in their financial planning process.
Hold advisors with that kind of outlook and attention to long-term detail up against “the salesman on the bond desk of the brokerage firm I started working for 35 years ago and there’s no comparison,” Taft said. “I actually think we have made a lot of progress.”
At the other end of the spectrum sits Jack Waymire, Worth magazine columnist and founder of the Paladin Registry advisor database in California.
Soft-spoken and not one to mince words, Waymire, former president and chief investment officer of a registered investment advisory firm, said, “I think stewardship is probably gone forever.”
Waymire, a 28-year veteran of the financial services world who is almost as qualified as Taft to reminisce about the industry, remembers the time when a stockbroker was called a “customer’s man.” That was because the customer’s man was supposed to benefit only the customer.
Things went downhill in the investment advisory business in 1975 when commission rates were deregulated and thousands of stockbrokers suddenly found themselves unable to make the good living they were used to, Waymire said. That opened the floodgates to the sales culture that permeated brokerage houses. Brokers soon found themselves selling funds, securities and insurance products, he added.
A new measuring stick had taken hold: production and revenue. The higher the revenue, the more quickly brokers and advisors galloped into the corner office and the higher their esteem rose among their peers.
Stewardship, which was once “in play,” no longer mattered.
“I think a lot of that got derailed as a very powerful sales culture took over on Wall Street, probably precipitated by the deregulation of interest rates and how people made money,” Waymire said.
Compared with Taft's view, Waymire paints a more clouded perspective of the financial advisory industry, one in which only 5 percent to 10 percent of advisors adhere to a fiduciary standard “most of the time.”
Waymire said the nod to transparency is really an acknowledgement of “selective transparency,” in which advisors are quick to disclose strengths in order to win business, but just as quick to obscure weaknesses the moment past results or track records enter into the advisor-client discussion.
So, who’s right and who's wrong?
Michael Falk, a partner with Focus Consulting Group in Long Grove, Ill., said both views are right.
“I don’t think you have to choose one versus the other,” Falk said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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