Who Does Your Financial Advisor Really Represent?

In my recent blog entitled The Three Mega-Trends in the Wealth Management Business, I made the case that three important things need to happen in this industry:

• The Business Needs to Grow Up—the industry needs to move from a manipulative product sales model to a real professional services model;
• Narrative Before Numbers—clients’ stories need to be heard and understood before the charts and graphs start flying; and
• The Need for a New Culture—the industry is rife with conflicts of interest that need to be cleaned up.
  
  
  

The Need for a New Culture 

There is currently a reckoning happening in our society. Demand for transparency is the drumbeat of the day. That trend is spreading to the wealth management business.  Recently, the Department of Labor and the Securities and Exchange Commission have been taking a hard look at the conflicts of interest that are rampant in the financial services and the wealth management industry. 

I worked at two of the largest global wealth management companies for 25 years. I had a front-row seat to how the largest firms operate. 

This issue can become very complicated, so let me boil it down to the most common denominator: Your financial advisor can only have one master—either it’s you or it’s his employer.

Representation

When I worked for Morgan Stanley, I wore three legal hats—often changing them during the discussion with a client or prospect without their knowledge. I represented the Firm’s bank on banking products like mortgages. I represented the firm’s brokerage operation during insurance product discussions and I represented either the brokerage or the client depending on the investment product we were discussing. There is obviously no way the person sitting in front of me could tell which hat I was wearing at any one moment. 

All I was trying to do was serve the client the best way I could and so are most financial advisors in that situation, but the platform was rife with conflicts of interest before I walked in the door every morning. 

The bottom line is that there is no way a financial advisor at firms like that can honestly say “I represent you, the client, 100% of the time”. Advisors weren't necessarily always incentivized to act as a fiduciary though they should.

Let me give you an example. When a client would ask me about mortgage products when I was at Morgan Stanley, the only products I legally could sell were Morgan Stanley’s mortgage products because I was a representative of Morgan Stanley’s bank. If I knew of a better product down the street at another bank, I could not sell that. If I did so, I would have been violating my contract with Morgan Stanley and been accused of “selling away”. By doing so, I could be subject to being fired by the Firm, possible fines by regulators or could have even lost my licenses. Situations and stipulations like the above example could put advisors in a challenging situation.

Transparency

Fortunately for consumers, there are firms that can represent them 100% of the time. Those firms are called Registered Investment Advisors (RIAs) and they allow advisors to act as a fiduciary.

Because our team’s mission is to help families thrive across multiple generations, we felt the only way we could do that with full integrity was to form our own RIA. That is why Archetype Wealth Advisors was born.

If you are not sure whether your advisor represents you 100% of the time, ask them directly. If they aren’t a fee-based, RIA-only firm, they cannot say “yes”.

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