Over 14 years ago when I made the decision to move from the corporate ranks into private client advising, one of the first and most important decisions I had to make was on my business model. This was frankly, an easy decision to make. My experience in selling to corporate owned brokerages was what convinced me that there had to be a better way for retail (real) investors to get unbiased, conflict of interest free advice. During a flight home from a sales trip to Vancouver, I sketched out my reasons. I recently came across my notes from that flight.
Ultimately, this is a question of control. Every client relationship has three primary stakeholders; the client, the advisor, and the brokerage firm. A client’s best interests are served when an independent advisor takes priority in the relationship over the brokerage firm. Independent thought regarding client service, loyalty, and work environment requires the ability to act. This could include the need to relocate to a different brokerage firm or platform. The decision and ability to act unimpeded by the brokerage is imperative for an advisor to truly be independent. The brokerage business model must enhance the relationship that I have with each and every client, not detract from it.
An independent advisor has control over the client experience. This can include office space, office style, staff and client support. Corporate owned structures rent out space to their advisors either in the form of rents or compensation grids. Independent advisors choose the location, look and feel of an office and pay for office expenses directly. The independent advisor makes the decision whether to own their own space or rent, and to choose the size and style of the office. Being able to hire staff and having control over the hiring process and compensation is another critical aspect of independence. This allows the advisor to focus in on their client’s needs and interests, to complement personality, style and client relationships. This also ensures the freedom in regards to business strategy and the desire to provide a meaningful and valuable client experience. One other critical aspect is succession. An independent advisor has the ability and control over the succession plan and eventual implementation.
Products & Services:
The independent advisor makes the decisions on investment recommendations. They take credit for good and timely calls, and accept the blame for recommendations that did not work out as anticipated. Product takes the form of individual stocks and bonds, exchange-traded funds, mutual funds and other investment solutions. An open product shelf and no incentives to promote or entice a client towards one product over another provide a conflict-of-interest free environment by which advisor and investor can work together to choose appropriate investments that are personalized to the investor’s needs.
Part of the product equation includes technology and research. Independent advisors have the ability to choose to use brokerage provided tools as well as personally sourced research and technology. This can include Client Relationship Management software that allows tracking of meetings, phone calls, emails and scheduled activity as well as historical activity. Technology comes in three basic forms including the actual investments into hardware such as phone and phone systems, servers, desktops and laptops; Trade and order management applications which are provided through the brokerage firm’s systems; and client contact and relationship management software (CRM). An independent advisor is able to choose the technology that best suits their business and client services.
Research is a vital aspect of an independent advisors tool belt. Apart from the research and data services a brokerage firm provides, independent advisors can at their own determination (and cost) choose additional research services. As for the type of research, this can include fundamental research from third parties, mutual fund and exchange traded research and analytics, and technical research as well as services from economists and market strategists. Independent advisors have the choice as to which research to obtain, whether from sell side analysts to independent analysts, and the decision as to what extent research and technology accounts for business expenses.
Why is ‘Independence’ important to Investors?
A brokerage firm provides compliance oversight, supervision, research, trading and reporting platforms. Each of these fulfills an important aspect of client service and management. More importantly, they free an advisor to focus on the primary stakeholder – the client. The financial services business is just that, a business. The advisor is the owner of that business. When I decided to become an independent advisor, I wanted clients to benefit from independent thought, to benefit from a partnership with a brokerage that provided sound compliance oversight, and implementation and execution services. No advisor acts as an island. Having a brokerage firm and back office that enhances the ability to serve the client is vital. We made the decision to join an independent firm in 2002 (KingsGate Securities) and we were concerned when a large publicly owned insurance firm purchased them in 2005. Since then, we have been more than impressed with Industrial Alliance Securities, and their support for our business and our clients. They have been wholly committed to the independent advisor and have demonstrated that commitment over and over. We view our relationship with Industrial Alliance Securities as a beneficial partnership.