Why I Referred My Close Friend to a Part-Time Fiduciary

By the way, have you ever seen some of the things that fee-only RIA firms have said? And they get away with saying them because they’re not heavily scrutinized by FINRA. I’ve seen borderline lies and misrepresentations, from performance being better to costs being lower:

• Performance being better? Has any study conducted ever proven that? Tweet it to me or post it on APViewpoint, because I didn’t get the memo.

• Costs being lower? That’s another whopper. While it’s true that the slice of commission taken is typically larger than what an RIA firm’s fee would be, it can actually come out cheaper in the long term depending on how frequently you trade. Let’s say that the broker makes one trade in 10 years. An RIA firm could be taking more over 10 years since their fee is ongoing.

These claims are not true all the time. If you were at a FINRA shop, they would never let you make untrue statements. You’d be fined, wrist-slapped, written up and maybe even get your license revoked in no time. It’s only because RIA firms are far less regulated than broker dealers that they get away with this.

It’s also hypocritical. RIA firms are incented to urge people not to pay down their mortgage, start a business, pay down debt or buy real estate. Why? So they can put your money into mutual funds, charge you 1.5%, and make their 1% per year on the heap of cash sitting idle in your account.

There are broker dealer reps who have lied, cheated and stolen from clients.

There are investment advisor representative (IARs) who have lied, cheated, and stolen from clients.

But show me the study confirming that more fraud and crime is committed at broker dealers than at RIA firms and I’ll stand corrected. And while you’re at it, make sure you take into account that there are way more broker dealer reps than advisors at pure RIA firms. Pure RIA firms, solely fee-based, are a relatively small percentage of the industry. So the comparison basis has to be relative not absolute.

Let it go, RIA firms!

You’re just directing attention away from your brand

Did you ever realize that the phrase “pay attention” has the word “pay” in it?

That’s because, in marketing, the attention and the money go hand in hand. If you’re ragging on the competition right and left, you’re really helping them. If you do it long enough, eventually the client gets curious to hear what the competition is all about and they’ll visit a website or two.

Congratulations, you just sent a lead to your competition’s sales funnel.

If you have any doubt about this being true let me serve you with a quick example about the man named Antonio with whom I now have three children. Once upon a time in the land of Manhattan there was a girl named Sara who was an expert in being emotionally unavailable. Then Prince Antonio rode in on his horse. The more he tried to get my attention the more I was repulsed. But he persisted, and with each of his efforts I grew more and more irritated at him to where I hated him. Then one day my sentiments changed. Have you ever heard someone say someone “grew on them?” All the attention I paid to hating him allowed me to fall in love with him. Years later, here I am pushing his three kids in a triple stroller to school every day. He cast a magic spell on me and I am still in love with Antonio.

Hate is an extreme emotion, just like love, and because of that hate can turn to love more easily than you would think. Trying to make the world hate broker-dealer reps is doing them a favor by drawing attention to them.

How to liven up the boring fee discussion – Give more

The way I see everyone going on and on about fees and the fiduciary standard on their websites makes for incredibly boring marketing. The RIA firms droning on about this are the ones who have nothing interesting to say about themselves, have zero creativity and have nothing else to offer than acrimonious criticism, which is never an effective marketing tactic.

What are you giving the people who visit your website?

Don’t think of your website as an advisor. Think of it like the client thinks of it. What are they interested in knowing about other than fees? Unfortunately most advisors get so caught up in the great fee debate that their websites say nothing of value about anything else.

Do the following on your websites:

• Have a separate page called “Compensation” or “Fee Structure.”

• Clearly disclose your firm structure and where you are registered (pure RIA firm in the state of Texas, fee-only, fee-based, dual-registered, commission only or whatever it may be).

• Explicitly state the terms of the fees you are offering organized in table format. For example, 1% of portfolios greater than $1MM, 1.25% on portfolio less than $1MM.

• Explain how and when they are going to pay you. Are they going to be write you a check from their pocket or is the money going to be debited out of the account?

• Explain in one or two sentences only your fiduciary claim.

Example: As a fiduciary, I am obligated to put the interests of my clients before my own. I chose to structure my firm this way because it created a more objective experience for my clients and has served them better.

Notice that I don’t blather on and on about how other people aren’t as good as me!

Refer them to your ADV or elsewhere for more information.

Why I referred my close friend to a hybrid advisor

Let’s consider the scenario at hand and why I referred my close friend to a part-time fiduciary.

Not every broker is a variable annuity, hottest-stock-pushing obnoxious salesperson. Many of them are gradually phasing out their broker status because they are doing more advisory business.

In this case, I referred my close friend to a hybrid firm because I was totally impressed with the people. The two principals of the firm had over 20 years of experience each. One had been in business 35 years. They are geographically located close to where my close friend lives. In my associations with the firm, I found them to be brilliant in how they thought about things. They were excellent communicators, enthusiastic, vigilant and prompt in their responses.

Most of all, they are generous people. Their website is full of shiny happy pictures of them with their clients – yes their real clients, not stock photos. They hold all kinds of client events because they want their clients to meet and help each other. They were the most giving advisors I’d ever met. I could see the love they have for their clients in their hearts.

In short, it seemed like the customer experience would be amazing. In my dealings I have never seen a fee-only RIA firm that offered anything that came close. Why would I suggest that my close friend work with a pure RIA firm? I’ll explain the difference between hybrid and pure RIA firms, caution her and make it clear what the drawbacks could potentially be and how to avoid the situation.

A type of business is a set of guidelines on paper and a person is a living, breathing, thinking, feeling being who takes action. The person, not the firm, creates the experience for the client.

Morality depends on the individual. Some people will do right by you no matter what the law says. Other people could have all the laws in the world imposed upon them and still find a way to sneak around them.

Sara’s upshot: What are you giving?

The great fee debate, as I call it, is something that many advisors like to pay a great deal of attention to, both internally and in the ways they publically market themselves. But relationships thrive on giving.

However you charge for your services, make it so that they feel it is the best dollars they ever spent. That way no matter what you are – full fiduciary, part-time fiduciary or not even a fiduciary at all, the client feels they have been given something of value.

Giving – not receiving – must be the focus of your marketing. With your marketing and with everything you do in your practice, show that you are a giver.

Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in Quantitative Finance.

Read more articles by Sara Grillo