Whenever I attend conferences for independent investment advisors the conferences are full of former brokers from big brokerage firms who refer to their move to independence free of the need to peddle proprietary products as "leaving the dark side".
As the WSJ reports an increasing number of brokers are moving to this model
Brokers’ Call on Wall Street: Bye
More advisers are going independent, as industry model loses luster for some
Wall Street’s brokerage model is under assault—from within.
A number of brokers, disillusioned with pay hurdles and strict corporate cultures, are taking their billions of dollars under management and going independent. In doing so, many also say they are pursuing more control over their practices and a higher standard of care for clients that focuses more on service and less on pitching proprietary products
I am a bit more cynical and attribute a great deal of the move to the growth in client sophistication and education moving their money out of actively managed funds with high management fees and into ETFs and index funds as demonstrated by the money flows reported in recent years. In order to meet the needs of these clients the advisors need to do more than peddle products and then split the fees with their brokerage firm nor can they offer a limited menu of actively managed funds.
The first set of fees charged to customers to fall were the outrageous "loads" on funds in which either a front end or back end sales charge often as high as 5% was charged to the investor. This practice continued for decades before it met its demise fuelled in part by the creation of "no fee fund supermarkets" at several of the discount brokers.
The next stage which we are seeing now is investors voting with their feet and moving their money to index funds and ETFs. Many are simply investing on their own and some are using robo advisors". But there are many that want objective personalized advice particularly if it extends beyond simple picking investments. This explains the mass movement of brokers to the independent model; the traditional brokerage model is simply not build to deliver services of this kind (and adequately compensate the advisor on this structure.
A number of brokers, disillusioned with pay hurdles and strict corporate cultures, are taking their billions of dollars under management and going independent. In doing so, many also say they are pursuing more control over their practices and a higher standard of care for clients that focuses more on service and less on pitching proprietary products
I am a bit more cynical and attribute a great deal of the move to the growth in client sophistication and education moving their money out of actively managed funds with high management fees and into ETFs and index funds as demonstrated by the money flows reported in recent years. In order to meet the needs of these clients the advisors need to do more than peddle products and then split the fees with their brokerage firm nor can they offer a limited menu of actively managed funds.
The first set of fees charged to customers to fall were the outrageous "loads" on funds in which either a front end or back end sales charge often as high as 5% was charged to the investor. This practice continued for decades before it met its demise fuelled in part by the creation of "no fee fund supermarkets" at several of the discount brokers.
The next stage which we are seeing now is investors voting with their feet and moving their money to index funds and ETFs. Many are simply investing on their own and some are using robo advisors". But there are many that want objective personalized advice particularly if it extends beyond simple picking investments. This explains the mass movement of brokers to the independent model; the traditional brokerage model is simply not build to deliver services of this kind (and adequately compensate the advisor on this structure.
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