Most Popular ArticlesTurmoil at the Top of the Market
August 4, 2009
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A list of Dan Richards’ previous articles appears at the end of this article.
“Once an accident, twice a coincidence, three times a trend” is a rule of thumb among observers of political campaigns.
That’s why I was struck by recent articles in Business Week, the New York Times and the Wall Street Journal. These articles describe turmoil among high-net worth investors and have profound implications for financial advisors.
Business Week
First came a Business Week story in late June outlining how the number of affluent Americans looking to switch advisors has tripled in one year, leading to a spike in investors seeking out second opinions. (Links to all of these stories can be found at the end of this article.)
Many investors find this process excruciatingly difficult. “My planner was a friend, a good guy .... but I had to stop the bleeding” said one investor who had moved. “It was almost like a breakup .... you know - I’ll take the dog, you take the silverware.” Among the advice in the Business Week article was for investors to take any second opinion with a grain of salt and to work hard on the relationship before splitting, just as they would a marriage.
Wall Street Journal
Last Wednesday, the Wall Street Journal weighed in on how affluent investors are shifting from Wall Street brokerage firms to Registered Independent Advisors using firms such as Charles Schwab, Fidelity and TD Ameritrade to provide a back-office platform. The key attraction behind the move: The perception that independent advisors will be more objective and more likely to put their interests first.
The article talked about the fact that RIAs are held to a “fiduciary” standard in the advice they provide, in which they are obligated to operate in their clients’ best interests; this is a higher level than is required of brokers at Wall Street firms, who are guided by “suitability rules” in which they are merely prohibited from recommending inappropriate products. (The Obama administration has made noises about extending the fiduciary standard to all financial advisors.)
Investors making a change struggle with the “Who Can I Trust?” question, plagued by the lack of consistent regulatory oversight and the alphabet soup of advisor credentials. In a sign of the times, the article’s closing piece of advice urged investors looking to move to hone in on potential conflicts of interest.
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