In Dallas, there is a world renowned medical and fitness center called The Cooper Clinic founded by Dr. Kenneth Cooper who has been credited as the “father of aerobics”. It’s set in a beautiful campus with trees, ponds and running trails interspersed. A few years back, I went there for an executive fitness check-up and it made a lasting impression on me. It is essentially a one stop shop for best of breed medical care. My day there began by meeting a primary physician who started by asking multiple questions about my health and reviewing my medical history. He was essentially the “quarterback” of the process helping me set fitness and health goals. Then he sent me out to spend nearly the entire day beginning with blood work then progressively down the halls for EKG, treadmill, nutritionist, psychologist, dermatologist, BMI, fitness consultation, etc. And for those over 50, there are some more…ahem…invasive procedures. In each medical discipline, the specialist was about the most competent in their field as there are in the area. At days end, I met back with the primary physician and we reviewed the results of the day together, discussed any adjustments needed and set up a plan of action. The following week, I received a very professional personalized bound book full of the results, what was discussed and a reinforcement of the plan of action.
I frequently think about how efficient and professional this set-up at Cooper Clinic was. One singular location and one day dedicated to my fitness and health, being seen by the most competent professionals working and collaborating with one another all for what is in the best interests of me, the client. Since that experience, I have often wondered why we haven’t seen this form of business model applied to financial services. But then again, I think I do know why….regulatory and manufacturing silos that have walled off collaboration and coordination among various financial professional disciplines that have driven the disjointed business models we see today.
Most folks have their tax accountant in one part of town (I’ve kept mine in San Diego for 20 years), their estate planning attorney in another, their life agent in yet another, their P & C agent in another, and their investment broker/planner/advisor (circle one or more) in even another. Multiple locations, numerous appointments likely spanning years to get done, if done at all. And while they should, the likelihood of each of these professionals coordinating or even sharing information is slim at best. In fact, it’s more likely that they’ll be giving conflicting and competing advice. While not as efficiently set-up as Cooper, most medical practices are in a medical center setting where there is access to other specialist and professionals in the same building. Not in our business. The silos won’t allow it. We have FINRA for brokers, State Department of Insurance for agents of multiple varieties and the SEC for Investment Advisors, each held to a different standard, oversight and regulations. And just try to house a practicing attorney or accountant in a FINRA regulated branch…it’s almost impossible. Further entrenching these silos, we’ve historically had a predominance of product manufacturers maintaining their own distribution platforms often to the exclusion of objective alternatives. Fortunately for the consumer, there is a ray of hope that we’re on the cusp of some dramatic change, whether we as an industry are ready for it or not…and I suspect the consumer is more ready for it than we are.
Over the past decade, there has been a slow but steady shift from proprietary manufacturer based models towards independence. Many smaller insurance and investment product manufacturers have already given up owning a B/D or sales force in favor of 3rd party distribution run through multiple channels (aka silos). But from my vantage point…you ain’t seen nothin’ yet!
It has gone from a question of “what would happen if” a couple years ago to “what’s going to happen when” as it relates to harmonization of regulations and regulators. When all who give personalized financial advice are held to a fiduciary standard and that standard is overseen by a single SRO, the silos will begin collapsing. I think the next couple years will see more change, the majority for the better, in the following ways:
- FINRA Brokers will be held to the higher standard as a fiduciary causing the pace towards independence, open product architecture and fee based compensation (away from commissions) to quicken. This will include FINRA registered insurance agents
- RIA’s may become overseen by FINRA as their governing SRO forcing most to join a scaled partner for supervision and shared economics, most likely resembling a hybrid B/D-RIA model.
- Elimination (hopefully) of “two hats” (1 for advice-1 for product recommendations) for investor simplification into one big harmonized hat.
- Product Manufacturers will find it economically impractical to maintain a proprietary distribution sales force and most will divest or sell their B/D’s currently set up as an accommodation to the sale of their products (most true with insurance co owned B/D’s with exception being a handful of large mutual life co.’s)
- The move by the DOL towards applying fiduciary standards for IRA’s will greatly impact the current retirement rollover market away from commissions towards fee based comp placing even more pressure on commission based sales models.
- Small Independent B/D’s (the vast majority today) will be squeezed out of business with already thin margins due to increased compliance expenses, decreased revenues from vendors and a further move towards fees.
- While there will continue to be some movement away from the 4 major wires towards independence, most of the movement will likely come from insurance B/D reps and Indy B/D Reps who currently find themselves affiliated with a firm not prepared to survive the changes.
- A quickening of new models launching to meet the needs of the marketplace similar to what we’ve recently seen with HighTower for wires, United Capital for RIA’s and Lion Street for elite life producer groups.
Where the door is being closed on certain business models, at the same time the door is being opened for new, more current ones. With the silo’s coming down over time, the landscape will have finally been set for a Cooper Clinic type model for Financial Services to exist. Imagine this, going to a professional office park setting to meet with your advisor/planner (the quarterback) to complete a full fact finder and financial history, set goals and objectives, etc. Then spending the rest of the day meeting with tax accountant, estate planning attorney, life agent, P&C agent, asset manager and at the end, tie it all together with a plan of action with your primary care planner. Each professional handing off to the next with a fully coordinated and integrated financial game plan. It does exist in certain pockets today, but it is the rare exception. Removal of the silo’s will allow multiple disciplines in the financial services business to work with one another for the benefit of the client within a singular business platform as opposed to the often conflicting and uncoordinated product push we see today. And just to clarify, a fee only RIA who offers only asset management for a fee is involved in “product push” as much as the salespeople they go at lengths to discredit. While RIA’s are fighting the change towards an SRO and Registered Reps and insurance firms fighting the fiduciary standard, there is a small segment getting to work on developing a new business model to thrive into the new era. It would behoove most advisors to take a hard look at their current affiliation and weigh their options. Better to make a well researched change yourself rather than have it forced on to you when you are least prepared.
"Life is like a combination lock; your job is to find the right numbers, in the right order, so you can have anything you want." — Brian Tracy
"Change is hard because people overestimate the value of what they have—and underestimate the value of what they may gain by giving that up."
— James Belasco and Ralph Stayer
“I skate to where the puck is going to be, not where it has been.” -Wayne Gretsky