Wirehouse Briefing

In response to the SEC's defeat in a federal administrative court, wirehouses are either segueing clients from the old fee-based accounts to new, nondiscretionary advisory platforms or into straight commission accounts. All five of the giant houses now have nondiscretionary advisory programs in place, which  sounds almost like a contradiction in terms.

Still, Smith Barney managed to position itself ahead of the game. According to the firm's media statements about their SB ADVISOR account, which they created and launched in 2005 in anticipation of the decision, "Smith Barney ADVISOR is a capability that incorporates multiple products into a nondiscretionary fee-based platform. We've eliminated product barriers to include a broad range of mutual funds, as well as listed equities and fixed income. We'll even use assets clients hold at other firms within the proposal when establishing asset-allocation parameters, as well as for tracking for suitability."

Even before the SEC's defeat in court. many financial advisors started transitioning their business into their advisory programs, and as of the end of September, approximately $18 billion (or 90%) of these assets called Smith Barney's AssetOne program their home. Merrill Lynch is promoting ML Personal Advisor-a nondiscretionary advisory account-to their fee-based brokerage clients, but did not wish to discuss any particulars at this time. UBS recently lowered the minimums for its Strategic Advisor program to $50,000 to help smaller clients make the transition.

But according to Walker, it's the wirehouse training that is a sticking point. He points to the SEC's court defeat as "casting a spotlight on the nature of the client/counselor relationship." He says, "A fiduciary relationship is one of trust and confidence. It demands deep discussions between advisor and client to establish what is in the best interest of the client. The wirehouses have not trained their advisors to have those conversations."

Strategies To Seize The Moment

Howard says the change is causing her firm to rethink its marketing strategies. Indeed, notes Walker, "If a [wirehouse] relationship has been lacking, the existing broker will have an opportunity to reframe and even expand the client relationship. However, if the client has not been satisfied, such a repapering exercise will be a tipping point and money will migrate to independent advisors."

Lawyer Patrick J. Burns Jr. notes that his firm has been witnessing brokers moving from the wirehouses to independent RIA platforms. "It's the final reason needed for brokers who have been thinking about leaving a wirehouse to make a move to their own firm. When clients realize that RIAs are fiduciaries and, as such, are obligated to look out for their best interests, they can get pretty excited when they find out their rep has established his or her own RIA." He adds that clients who do complain about the process of moving their accounts offer advisors the opportunity to pare down their books of business and work with those who appreciate the level of service being offered.

But other than jumping on a marketing opportunity or taking the plunge to start their own RIA firms, what other actions can advisors employ to take advantage of the favorable landscape? Two things readily come to mind: educating clients and prospects on what a fiduciary relationship really means to them and focusing on life situations affecting their clients. According to Martin Resnick, a CPA, and a partner and managing director at Resnick Investment Advisors LLC, "We have seen the majority of our business coming from wirehouses because clients are more concerned with how their money is being managed as they age and plan for their future and their children's future. Clients don't want brokers who are pushing the latest financial product in a nonfiduciary client relationship."

  "These issues go well beyond money," explains Walker, who agrees with Resnick. "We have a glut of people over age 50 facing retirement and a host of other issues. One of the most critical is health care." Froehlich concurs. "You should be knowledgeable about a variety of health care issues. After I turned 50, I went through the whole nursing home issue with my parents. I understand from personal experience what a life estate is." With the first baby boomers recently applying for Social Security, health-care issues promise to make a significant impact on clients' financial lives.

On the education front, advisors can author newsletters to clients and prospects, post material on their Web sites and offer special events like seminars and client appreciation nights that clarify the role of a fiduciary and the differences between a fiduciary relationship and a non-fiduciary relationship. Writing articles on the subject and alerting the local media help establish a relationship with an editor or reporter, and help educate the public at the same time.

"We're doing seminars on a regular basis targeting doctors and accredited investors," says Chad Coe, president of Coe Financial Group in Deerfield, Ill. "We've been sharing with our clients the difference between an ongoing relationship where we act as responsible advisors managing their relationship with third-party money managers and the brokerage model, which may not always have their best interests at heart."