Tuesday, January 24, 2012

Do You Love Me Just For My Money?

Large Wall Street firms have tossed independent advisors yet another great opportunity.

Recently, management at many of the wirehouses informed their financial advisors that they wouldn’t get paid on accounts with a balance of less than $250,000. These clients are being shipped off to a call center because, in so many words, they can’t be profitably serviced by a “full service” financial advisor.

This decision is a frank admission that the cost structure at big firms is still too high. Large firms in the Dodd-Frank era are feeling the squeeze. The result is predictable: Wall Street again put self-preservation ahead of advisors and clients.

Is that any way to treat people, let alone someone who may become a worthy client one day? The opposite is also true: Aren’t these big firms really saying that if you have enough money, we will love you?

Short-Term Thinking

This bloodless view of the world is not particularly nice, nor is it necessarily good business practice.

The fact is not everyone is born a 1 percenter. Clients with smaller accounts often grow into much larger ones. Here in Northern California, engineers and many entrepreneurs are just one IPO away from fabulous wealth.

The problem with packing smaller accounts off to a Siberian call center is that you never know who becomes the next Mark Zuckerberg. If clients are mistreated before they hit the home run, there’s virtually no chance they’ll ever come back.

Opportunity For Independents

The good news is that a large firm’s cast-offs can be good business for independent advisors. Because independents have far less overhead, they have lower costs and can incubate smaller clients profitably. The key is having the right business model.

There’s another opportunity, too, for independents: The freedom to run a business as advisors see fit.

Most accomplished advisors don’t want corporate bureaucrats dictating how they serve clients or operate their business. A large firm’s management decisions are particularly irritating because they not only deprive advisors of income, but also create the embarrassment of having to tell clients that the firm believes they’re no longer worth the time.

Wealth management can’t be all about the money. Just like in any relationship, if someone happens to have money, that’s fine. But that’s not the reason you love someone.

As an independent advisor, you don’t have to be all about the money. One of the greatest advantages of being independent is the freedom to do the right thing by your business and your conscience. That always feels good.


Anonymous said...

It's interesting the big brokerages are jettisoning the $250k accounts. Unfortunately, even charging 1% of assets, these accounts are largely unprofitable for independent advisors unless they're being abused in high load mutual funds or other C-Class funds. Pity the 99%!

Anonymous said...

Small accounts, however you define them, are usually not worth the costs and risks even if you assume that some small percentage may hit it big. These clients worry more, take more time to service, and the dollar return for the wealth advisor is small.

Jeff said...

There is no doubt that small accounts create a challenge for the reasons posted.

However, I believe the independent advisor is positioned to make a better business decision on whether to incubate these clients, or not, than Wall Street due to the cost to servce differential.

New client aquisition has become VERY difficult post the financial crisis, and my point is that independent advisors should consider all options to grow their business.