INDEPENDENT THINKING
By John Robinson (J.R.)
| Financial Advisers of America has asked one of its affiliates to provide an unfiltered perspective on what it means to be an independent financial adviser. FAA has tapped John Robinson for this task because of his experience as a highly successful adviser in both the wirehouse and independent brokerage and RIA channels and because he is outspoken and passionate about the profession. J.R. is the owner and founder of Financial Planning Hawaii, a Honolulu-based FAA affiliate and independent RIA with more than $100 million in AUM. He is an award-winning writer who has published numerous professional papers on topics ranging from adviser compensation and ethics to retirement income sustainability, and his op-ed pieces and commentary are frequently featured in the industry news media. Readers may visit J.R.'s website at www.fphawaii.com. |  |
Greetings,
As noted above, FAA has asked me to share my thoughts on what it means to be an Independent Financial Adviser. It is a subject that is near and dear to my heart and one on which I am more than eager to expound. However, as a preface to this commentary, let me begin by saying that if you are visiting this site as an adviser who is considering making a change from a major brokerage firm or another independent firm, I do not envy you. The process of changing firms is unavoidably labor intensive and stressful. Having moved my client book three times over the past 22 years (two national brokerage firms and two independent firms), I have a fair amount of experience in such matters, and do not wish to sugarcoat the subject. For the record, none of my broker-dealer changes were precipitated by the lure of "up-front money", though there have been ample opportunities to do so. My first move was motivated out of geographic necessity to be with my wife who wanted to pursue a law career in her home town of Honolulu. The next two transfers were driven by a desire for greater professional autonomy and by a zealous quest to find an environment where I could truly put my clients' interests first. In short, I craved true independence.
Like it or not, the degree of independence you are afforded at any broker-dealer/RIA will be determined in large part by your relationship with the firm's Compliance Department. It is important to understand at the outset that independence at any firm does not mean you can do or say whatever you want, whenever you want, in any forum you want. We work in a highly regulated profession, and FINRA and the SEC have complex rules in place that are intended to protect the public from unscrupulous or inept firms and advisers. These agencies expect all B-Ds and RIAs to uphold these rules to the fullest, and it is the Compliance Department's job to make sure the firm and its advisers toe this line. As much as I craved independence, I also recognized the important role that Compliance plays in protecting my career by keeping me from unintentionally running afoul of the intricate regulatory web in which we operate. I was not seeking "no compliance", I was seeking "common sense compliance".
To me, independence meant gaining the right to brand my company and to build brand recognition through fostering productive relationships with the media. It meant having the intellectual freedom to write and publish professional papers and to write op-ed pieces—even on controversial industry issues. It meant gaining the freedom to advance my own investment philosophy and being free from conflicts of interest inherent in firms that promote their own proprietary products and services or that have related investment banking and/or commercial banking enterprises. It meant being able to speak frankly and candidly with my clients and to communicate with them through public events, email, and newsletters in a manner that allows my personality and professional style to come through. It meant being able to offer real, holistic customized financial planning guidance, and the freedom to choose the planning software tools that would enable me to further this objective. All of these are part and parcel of what real independence means to me, and in a common sense compliance environment, these freedoms should be permissible.
If independence is an important factor in your decision making process too, you will likely find that one of the challenges is determining what independence really means at each firm you are considering. All firms, from the largest national wirehouses down to the very smallest B-Ds, proclaim that freedom and independence are benefits of signing on with them. Part of the challenge involves figuring out whether their definitions of independence match yours. At the brand name brokerages, the definition of independence often includes allowing advisers the privilege of setting their own hours (as long as certain production levels are met) and the freedom to advise one's clients as one sees fit within certain clearly defined parameters (e.g., required use of proprietary planning software, certain product limitations, restrictions on financial planning services, etc.). For me, the wirehouse definition of independence did not fit my entrepreneurial nature. I was never comfortable with the notion that, no matter how independent they told me I was, at the end of the day, the firm considered me to be an employee and viewed my client book as their property. Further, the fact that most national brokerage firms reserve the right to terminate their "at will employees" at any time without cause and hold out the threat of legal action if an adviser attempts to transfer to a competing firm did little to enhance my sense of freedom and independence within the wirehouse confines.
While, as the category name suggests, the definition of "independence" is typically broader in the independent broker-dealer space, closer examination reveals that each b-d has its own unique culture and that perspectives on independence can vary markedly from one firm to the next. For instance, at some of the larger indy firms, independence may mean primarily that affiliated advisers receive higher payouts than their wirehouse counterparts in exchange for assuming the local overhead expenses (e.g., office and staffing). Beyond that, the culture at these firms may not feel much different from that of national and regional brokerages. Some of the larger firms are more proactive in trying to stay true to their small firm independent roots by allowing their advisers a fair amount of entrepreneurial autonomy, but my general sense is that with large numbers of advisers, the firm's original risk management strategy, which was previously controlled effectively through selectivity and personal adviser contact, can no longer be maintained. As adviser counts rise into the hundreds or thousands, it becomes difficult, if not impossible, for Compliance to remain personal, and the large indy B-Ds, despite their best intentions, cannot help but become more wirehouse-like in their policies. On the opposite end of the spectrum, of course, are myriad tiny B-Ds that offer advisers a wide, perhaps even dangerous, berth with respect to Compliance, but are simply too small to have the resources to support the transition and ongoing business of an established, successful adviser.
What I needed was a Goldilocks B-D—one that was large enough to support a reasonably large and relatively complex financial planning practice, but still small enough to have a genuinely familial corporate culture, client-first ethics, and the aforementioned common sense approach to compliance. For me, that firm turned out to be FAA. As you will see from the other information I have posted on this page, at FAA, intellectual freedom and entrepreneurial spirit are not only allowed but encouraged. It is enormously refreshing to work with a Compliance Department that is supportive and collaborative, and I have been pleasantly surprised by how the elimination of Compliance negativity has rejuvenated my enthusiasm and passion for this profession.
As you embark on your quest to find the right broker-dealer, the best advice I can give is to figure out what independence means to you and to find a firm that accommodates that definition. Of course, the search for the right fit is made more daunting by the fact that you never really know whether the firm you choose will treat you with the same respect after you become a client as it did when courting you as a prospect. On this score, I can't help you except to say that if you are considering FAA, they are "the real deal". Ken and Jodi Johnston have honored every commitment they made to me, and Todd Pack and David Addy in Compliance are friendly, supportive, responsive and knowledgeable. No firm is the best fit for every adviser, but, if independence is an important factor to you, I encourage you to at least give Ken and Jodi a call. Best wishes and good luck with the search process.
Aloha,
John Robinson
Financial Planning Hawaii
220 S. King Street, Suite 1410
Honolulu, HI 96813
(808) 564-0654 or toll free (866) 894-3647
Fax (808) 697-6714
jr@fphawaii.com
www.fphawaii.com