by Brad Shepherd — I’ve spent nearly 25 years working with independent financial advisors. The work our industry does to help people, families, and communities is astounding — all driven by independent financial advisors and their commitment to the relationships they serve. However, when I take a step back and look at the relationship between advisors and their broker-dealers, it’s clear that the relationship is currently flawed and needs to move in a new direction.
The Need for Real Relationships
In order to effectively serve as an independent advisor, one must intimately understand the needs of each and every client. It is our belief that so must a broker-dealer understand the needs of each advisor they are blessed to serve and not just an understanding of production, marketing, operations, and compliance. Rather, there should be a focus on developing a real relationship, anchored on who the independent financial advisor is, their matters of importance, and their dream for their enterprise. It is a universal rule: one can only truly serve another when the proper time is taken to deeply understand the most important needs of that individual.
Unfortunately, few broker-dealers have this as a requirement in their relationships with independent financial advisors. The numbers don’t lie. This deficiency in relationship helps to explain why thousands of independent financial advisors seek a new broker-dealer relationship each year. Why do so many independent financial advisors feel the need to move away from their broker-dealer? Why do so many leave the ‘business partner’ so many broker-dealers purport to be? And why do frustration and wariness run rampant through traditional independent broker-dealers?
A New Standard
The answers to these questions reside in the fact that our industry is focused on the wrong outcomes and defines success by many of the wrong measurements. This, in turn, forces advisors to do the same. Our industry celebrates, rewards, and awards advisors based on their gross dealer concession, their assets under management, and the profit they deliver to their broker-dealer. I humbly submit that the majority of independent broker-dealers within our industry are unable to truly build a trusted relationship with an advisor.
Our industry makes decisions that focus on how to increase the broker-dealer’s margins by 1/10th of one percent without asking “for what purpose?” or “at who’s cost?” This problem or conflict is evident each time a large “economies of scale” independent broker-dealer gobbles up a smaller firm or sells to private equity, promoting that the strategy is good for all parties involved. In reality, it is obvious the acquisition is fueled by a desire to obtain additional volume, margin, and profitability for the broker-dealer…not build or enhance a relationship with the independent financial advisor. What, then, is left in the wake of this blind grab for growth? The evidence suggests that it is quality advisors and the clients that they serve who are left behind.
Competing Based on Mission and Values
The standard needs to change. The better standard is that the advisor is a means to the client’s end, and the broker-dealer is the means to the advisor’s end, not the other way around. I am proud to say that this is the standard we uphold at Founders Financial. Our industry should promote to advisors that true “success” lies in achieving the goals and dreams of their clients under their leadership. This is where our true calling lies as independent financial advisors. Fulfillment of this calling certainly yields “success” for both the advisor and their client, which then feeds upon itself…ultimately providing more reward than any independent financial advisor will ever truly need.
Further evidence of the industry’s misguided approach can be seen in the way broker-dealers compete based on nothing more than a price or a platform. They try to differentiate themselves by offering up their “unique” toolbox as a means to help an advisor manage their business more effectively. On top of that, many broker-dealers provide “capital” to move an advisor’s book of business because they see their transition as nothing more than a financial exchange. Period!
Let’s compete based on mission! Let’s compete based on our values proposition! Let’s compete based on the true impact we have on the lives of the independent financial advisors we are blessed to serve, as evidenced by their testimony.
Conclusion
The state of the independent advisor and broker-dealer relationship needs improvement. The focus should be on building real relationships, promoting a new standard, and competing based on mission and values. The industry needs to shift its focus from traditional measures of production and profitability to achieving the goals and dreams of its clients. Let’s work together to make the independent financial advisor and broker-dealer relationship truly valuable and effective.
If you’re interested in learning more about our perspective, we encourage you to download our whitepaper, “As Good As It Gets”. This whitepaper delves deeper into the flaws in the current independent advisor and broker-dealer relationship and offers solutions for improvement. Download the “As Good As It Gets” whitepaper today!
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