With last year's financial market turmoil slowly fading in the rear-view mirror, what can forward-looking CPA financial advisors conclude about the performance of their broker-dealers during the upheaval?
And what do the broker-dealers themselves say about how the crisis changed the way they address the needs of their advisors?
Answers to such questions may be of acute interest to advisors seeking assurance that their broker-dealer will serve their needs, and those of their clients, during the next crisis - however far into the future it may be.
If financial advisors learned nothing else during the latest financial crisis, it was the importance of a broker-dealer's solvency, according to industry veteran Dennis M. Gurtz, CPA, CFA, of Gurtz, Yurachek Brostrom & Associates in Bethesda, Md. "It takes money to be a broker-dealer, and many small firms are changing as we speak," he said. But size offers no assurance of a broker-dealer's survival, he added: "Merrill Lynch effectively went out of business."
And short of being acquired or bailed out by a larger firm, many broker-dealers have had to pare back support staff to stay afloat, effectively shifting more of that burden to their financial advisors.
Beyond financial depth, Gurtz considers the strength of a broker-dealer's compliance operation paramount - not a surprising priority for someone who worked for the Securities and Exchange Commission for 10 years prior to becoming a financial advisor. One way a broker-dealer's compliance department can be assessed, he said, is through private discussions with mutual fund and insurance wholesalers.
SUPPORT AS NEEDED
"Pay-out is also important," Gurtz said. "But so is support, related to your needs. If you've been in this business for 30 years and you're not really interested in new clients, your support needs are very different from those of somebody who needs their hand held at every step, needs classes and maybe a mentor. You would expect to pay for that in some way, either in lower payout, or direct out-of-pocket. It's important that the support be available, even if you have to pay for it."
Gurtz, who entered the financial advisory business in 1982, has been affiliated with Ameriprise Financial Advisers (and IDS, its predecessor organization) for two decades. The financial planning-oriented broker-dealer doesn't purport to be geared exclusively around the CPA financial advisor. "There is nothing magical about having a broker-dealer for CPAs," said Gurtz.
"A good CPA is not automatically a good financial planner; different skill sets are involved," he explained. There are limits, Gurtz believes, to what a broker-dealer can do to instill those financial planning skills in a CPA.
But it was precisely because he recognized that being a good accountant didn't automatically equip him to be a successful financial advisor that Marc Wagner, CPA, of Wagner Financial Services in Yardley, Pa., chose to affiliate with H.D. Vest, a broker-dealer founded specifically to serve the CPA channel.
"Where a lot of accountants get hung up in financial planning," he said, "is that it's not what they're used to - the debits don't always equal the credits; they need [a broker-dealer] that can guide them through the alternatives."
Beyond general coaching, Wagner said that he has benefited from accountant-specific business development tips, including "how to use a 1040 as a marketing tool."
"There are a lot of opportunities that come to an accountant that your typical securities rep doesn't have. And if the broker-dealer doesn't understand that, you're going to have a difficult time in this business," he said.
Last year's downslide took its toll on many broker-dealers, but some seem to be winding up stronger than before.
The Investment Advisors Division of Raymond James Financial Services is winding up 2009 with roughly a 25 percent increase in assets under management of the firm's independent advisors, according to Mike DiGirolamo, managing director of the unit. "We've moved up to about 100 relationships [with advisory firms] from about 80 last year," he revealed.
In many of the conversions DiGirolamo has had with prospective CPA advisors this year, he has heard concerns "about the instability of their firm, mergers, changes in branch management, less operational support."
Because its affiliated advisors are independent, an advisor can determine how much support they want and pay for it accordingly from their higher payout, DiGirolamo said.
DiGirolamo also has heard concerns from prospective new advisors about the prospect of tighter regulation of registered investment advisors. In response, Raymond James is creating an option for advisors to operate their RIA business under the legal umbrella of Raymond James. "It would alleviate the compliance burdens of running their own RIA, and still allow them to be completely independent," he said.
Like most other broker-dealers, Raymond James has been beefing up its information systems lately to take advantage of new capabilities. "We're adding Albridge, which is both a reporting and an aggregation system," he explained. "It will report on assets held by multiple custodians."
Meanwhile, 1st Global Advisors, another broker-dealer specializing in developing relationships with accounting firms, has also been investing heavily in its systems, according to president and chief operating officer David Knoch. "We want to make sure that our advisors are entering information into our systems one time."
Knoch said that integrating "best-of-breed technology" (including Morningstar's Advisor Workstation, Klein Decisions' risk assessment tool and Peter Montoya's Marketing Library) "is not a new concept," but "you want to make sure it's more than just a single sign-on, but the sharing of a common set of data."
Next year, 1st Global will make additional systems enhancements to "help advisors at the point of sale with their [investor] suitability obligations," Knoch said. "The last thing we want to have happen is for an advisor to have to have a second conversation with a client to clarify something suitability-related."
But Knoch doesn't believe that having the best systems or implementation solution holds the key to advisors' long-term success. The advisory firms affiliated with 1st Global, he said, "have focused more on advice and relationships as a differentiator," and technology simply facilitates that relationship-building by liberating advisors from administrative burdens.
So too does keeping advisors' clients informed about financial and economic developments - particularly when market conditions are so extreme that people have good reason to wonder whether the financial system is about to collapse.
During the darkest days of 2008 and early 2009, H.D. Vest Financial Services was warning its advisors to "keep the lines of communication open" with clients, said Roger Ochs, the firm's president.
"We had a steady stream of economic updates that were client-approved that they could send out," Ochs noted. And H.D. Vest executives were on the road constantly attending local advisor gatherings. "That was critical to get advisors together to talk about issues, and help them go back to their clients to have healthy conversations."
The result is that the firm lost very few clients. Ochs predicted that the firm would add 750 new advisors to its ranks of approximately 5,400 this year - "70 percent of them new to the business, and 30 percent transferring from other firms."
Growth is also the goal of Genworth Financial Wealth Management for 2010 and beyond, according to Michael Gandet, the firm's vice president of strategic growth. During the crisis period, concerns over the financial durability of Genworth's corporate parent gave pause to prospective new affiliates, Gandet acknowledged. "AIG, ING, a lot of big names were in the headlines. A lot of advisors were waiting on the sidelines to see who was going to make it through."
"As a firm, we have rebounded nicely," he added.
His unit of Genworth now has about 2,200 affiliated advisors, down from 2,400 a year ago. Between 80 and 85 percent of them are accounting professionals. Those who fell by the wayside, he said, typically weren't very involved in the investment advisory side of their accounting practices.
During the height of the crisis, Genworth's independent advisors were armed with a "market volatility module" from the firm's practice management educational resources. "We gave them a roadmap for when they sit down with the client, covering all of the things they have to consider."
Advisors were encouraged to "have a discussion with their clients around resetting goals, to review the path they had started down," Gandet said. "It made advisors realize there was nothing magical they could say to make everything better."
The talking points also included a discussion of the Bernie Madoff Ponzi scheme, "and how we do things transparently, to get clients comfortable with that."
The goal for Genworth and others, especially those focusing on serving CPAs, is to help accountants leverage their "most trusted advisor" status.
"The crash and Madoff has left the industry somewhat tainted," said Gandet. "We think there is a big opportunity, especially in light of everything that has happened, especially in the accounting world."
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