Do You Love Me Just For My Money?

Editor’s Note: BlogOnWealth and Independent Insight are now one. As of this post, Sanctuary’s two blogs will appear under BlogOnWealth. www.blogonwealth.com

We will continue covering the topics that both blogs have taken on in the past. Thank for your interest and we welcome your continued comments.

Large Wall Street firms have tossed independent advisors yet another great opportunity.

Recently, management at many of the wirehouses informed their financial advisors that they wouldn’t get paid on accounts with a balance of less than $250,000. These clients are being shipped off to a call center because, in so many words, they can’t be profitably serviced by a “full service” financial advisor.

This decision is a frank admission that the cost structure at big firms is still too high. Large firms in the Dodd-Frank era are feeling the squeeze. The result is predictable: Wall Street again put self-preservation ahead of advisors and clients.

Is that any way to treat people, let alone someone who may become a worthy client one day? The opposite is also true: Aren’t these big firms really saying that if you have enough money, we will love you?

Short-Term Thinking

This bloodless view of the world is not particularly nice, nor is it necessarily good business practice.

The fact is not everyone is born a 1 percenter. Clients with smaller accounts often grow into much larger ones. Here in Northern California, engineers and many entrepreneurs are just one IPO away from fabulous wealth.

The problem with packing smaller accounts off to a Siberian call center is that you never know who becomes the next Mark Zuckerberg. If clients are mistreated before they hit the home run, there’s virtually no chance they’ll ever come back.

Opportunity For Independents

The good news is that a large firm’s cast-offs can be good business for independent advisors. Because independents have far less overhead, they have lower costs and can incubate smaller clients profitably. The key is having the right business model.

There’s another opportunity, too, for independents: The freedom to run a business as advisors see fit.

Most accomplished advisors don’t want corporate bureaucrats dictating how they serve clients or operate their business. A large firm’s management decisions are particularly irritating because they not only deprive advisors of income, but also create the embarrassment of having to tell clients that the firm believes they’re no longer worth the time.

Wealth management can’t be all about the money. Just like in any relationship, if someone happens to have money, that’s fine. But that’s not the reason you love someone.

As an independent advisor, you don’t have to be all about the money. One of the greatest advantages of being independent is the freedom to do the right thing by your business and your conscience. That always feels good.

The Arab Spring Comes to Wall Street

One of the most heartening developments of 2011 has been the Arab Spring.

A year ago, people fed up with oppression began challenging dictators in Tunisia and Egypt. Inspired by their success, popular uprisings spread across the Middle East, taking down strongmen like Mubarak and Ghaddfi. After decades of suffering, tens of millions of people now have the promise of a better way of life.

Many factors contributed to the downfall of authoritarian regimes, but one cause that will certainly loom large in history is the power of information.

Information flowing across the Internet and via social media enabled repressed people to share new ideas and collaborate in ways that simply weren’t possible in prior decades. They were empowered when they realized that many other people shared their opinions.

Demonstrations were organized over Facebook. Firsthand accounts of government crackdowns traveled the world by Twitter. Mobile phones transmitted shocking video that triggered outraged in people everywhere.

That the hero of the Egyptian revolution was an executive of Google – the nexus for sharing ideas and information around the globe – is the perfect metaphor for the Arab Spring. Google embodies the liberating force of information, which ultimately outgunned soldiers, tanks and secret police.

Wall Street Feels The Breeze Of Liberty

For investors and advisors, a similar sense of liberation is occurring for the same reason: Information is breaking through Wall Street’s facade of omnipotence.

One of the positive outcomes of the financial crisis is that the veil has been pulled back on Wall Street business practices. The post-mortems on the financial meltdown have revealed the naked self-interest of Wall Street’s conflicted business model.

Many investors have come to realize that Wall Street frequently acts first in its own self-interest. After that comes investors.

Advisors have also gotten fed up with Wall Street. The dictatorial style management that intimidates advisors with a “just-buy-this-we-know-best” approach has prompted many advisors to break away so they can do right by their clients.

The Unstoppable Tide of Human Aspiration

As hopeful as the Arab awakening has been, it will no doubt be messy as countries lurch toward democracy and free markets after being under the yoke of tyranny for so long.

The same can be said about Wall Street and its business practices. As information sheds light on Wall Street, more will choose the freedom and choice offered by an independent advisor. But it would be unwise to underestimate Wall Street’s staying power. This will not happen overnight.

The good news is that it’s become impossible to turn back the clock on progress. The free flow of information cannot be thwarted thanks to the Internet and social media. Information will remain the jet fuel for the unstoppable tide of human aspiration.

Happy Holidays from the team at Sanctuary Wealth Services.