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Archive for May, 2012

Longing for Days When Banks Were Banks and Brokers Were Brokers

Is anyone else longing for the days when banks were banks — and you could even have a savings account that would pay you a decent yield on your money — which was (up to a certain amount) — government (FDIC) insured?  When and broker-dealers were broker-dealers and it was clear that they were selling something to the customers that dealt with them? When private banks had to act in their client’s best interest? And when insurance companies sold life insurance and didn’t pretend to be advisors, laying high-cost annuities on anyone who is naive enough to buy them?

This story in The FInancial TImes on surprise losses from trading at JPMorganjust reminded me how much I miss those days before the repeal of Glass-Steagall, the depression-era law that separated banks from broker-dealers. I think Paul Volcker is correct, that bringing back Glass-Steagall and separating banks, brokers and insurance companies would be in the best interest of most Americans. Short term, banks would feel some pain from being separated from the high-fee high-revenue broker-dealers that they are merged with now, but longer term they could do very well by adopting a fiduciary culture once more and putting their clients needs first, lending directly for mortgages and businesses, and helping people save.

Remember that?

To Increase Revenue Stop Selling

Forbes Contributor Mike Myatt posted an excellent article  entitled, “To Increase Revenue Stop Selling.” Bravo, Mike. Your point is important and holds especially true for financial services. This is a long term thinking vs short term thinking issue as well. And the reasons are practical as well.
Client acquisition is much harder than client retention.  It is much harder to bring in new client than to: put your client’s best interests before your own, avoid conflicts of interest, manage those conflicts you can’t avoind in the client’s best interest, help them diversify their holdings and disclose ALL costs to the investor — than to constantly have to bring in new clients.

In the discussion about extension of the fiduciary standard to brokers who advise individual investors, this is especially important. The antiquated culture at banks, BDs and insurance co’s is to reward the biggest “producers,”  while what investors need is the long term value added and problem solving you speak of. Short term, it is a big change, but long term, firms will have stickier, happier clients and a steadier revenue stream from a broader asset under management base.

A recent survey which I coordinated with fi360 and AdvisorOne.com shows tha the vast majority of brokers and investment advisors in the field want to put clients first–and if you think long term, it is in the advisor’s best interest to put their client’s best interests first at all times, as a fiduciary, than to have to look for the next sales customer.

You are absolutely right about changing the lingo as well. Think long-term client, rather than “prospect,” solving client problems and helping them meet their goals in a way that is in their best interest, and your client base will flourish. The investment advisor fiduciary model proves that this can be done. Do you know an investment advisor who is starving? No.

Banks, brokerage firms and insurance companies have to change how they offer advice, and they may have to separate advisors who really advise from salespeople who don’t have to act as fiduciaries — and those non-fiduciary salespeople ought to have a sales title, rather than one that implies an advisory, fiduciary relationship. Here is one place where the titles are very important.

Long term, changing the way these companies’ sales processes work can benefit their clients and themselves. The key is clients first, and long-term thinking.