In a recent news story, a large advisory team at a major brokerage firm was fired for what is known as “selling away”. For those of you that aren’t familiar, "selling away" is a securities rule that prohibits employees of brokerage firms from soliciting customers to buy an investment that has not been approved or vetted by their firm.
Seems like good procedure – right? On the surface, this rule helps to ensure you are not sold an investment or product that has not received the proper level of due diligence. But if you look a bit deeper, the rule against “selling away” highlights a key downside to working with a larger brokerage firm: by law, the broker is bound to put his/her firm’s interest first.
What does it mean for you?
If you work with a brokerage, or have considered working with one, you may have noticed that many of these firms are now saying that they provide "wealth management" or "comprehensive advice". Again – sounds great in theory. But in practice, these firms are effectively firing people for doing exactly that – for trying to find the most appropriate fit for your needs within or beyond the offerings of their own firm.
By law, the broker is bound to put his/her firm’s interest first.
There are two key areas that limit your broker's ability to provide "comprehensive" advice: (1) they cannot advise you to engage with a competing firm, and (2) they cannot purchase an investment that has not been approved by the firm as a whole.
So, what are some scenarios where these limitations might affect your wealth management strategy?
- If you are like most of our clients who work(ed) for Intel, and have a significant portion of your wealth in a 401(k), you may want some help deciding how to invest it. Unfortunately, the limitations faced by a broker means that he/she cannot advise you on how you can/should invest your 401(k).
- You receive an investment offer from a source other than your broker. While your wealth management strategy may benefit from an evaluation of all investment opportunities that arise, your broker cannot provide advice about investments outside of their firm.
- You are looking for a loan, and receive an offer that is more attractive than what is presented by your broker's firm. Because your broker can only help you with loans sold by his/her firm, they cannot help you look for the best rate and terms for this opportunity.
- You are considering investing in a startup or private business, and would like advice on how this may benefit or play into you’re your wealth management strategy. Again, your broker is unable to help you evaluate whether it is a good investment or not due to the restrictions in place.
There's another way to manage your wealth.
What many don’t realize is that working with a broker/dealer model is not the only way to manage your wealth.
Cordant Wealth Partners is subject to a “fiduciary” standard of care with our clients. That means our investment recommendations and wealth management advice must be in the exclusive and best interest of our clients – not subject to the stipulations of a major brokerage firm.
In fact, the founding Cordant team left a major brokerage firm to free ourselves from these same structural issues, and enable us to provide objective advice on EVERY financial decision. We only "sell" our advisory service to you because, unlike major brokerage firms, we are not affiliated with the sale of any financial product.
Some brokers might try to skirt the line and provide adhoc advice regardless of whether it is condoned by their firm or not. But (as we have seen) while this might be in their client’s best interest, it puts the broker's job in jeopardy. This burden of execution begs a series of questions: How sustainable is this service model? And, if your broker were let go, what risks would that pose to your wealth management plan going forward?
To learn more about How cordant helps its clients develop a comprehensive financial plan, give us a call at (503) 621 – 9207.
Click here for disclosures regarding information contained in blog postings. Cordant, Inc. is not affiliated, associated or endorsed by Intel.