The Financial Industry Business Model is Broken

Here is another example of why we believe at fiSMART that the financial industry is going through a complete overhaul because the business model is broken. Recently, a financial advisor contacted me to discuss his situation. He had left the wirehouse firm to go independent. He moved his entire team with him. Needless to say, the wirehouse filed a motion and lawsuit when he left. I do not know all the details, but he stated he was not shocked by this and was even prepared for it.

His shock came when three weeks into his departure and litigation still pending, a representative from that wirehouse was in the lobby of his office asking to meet and discuss the separately managed account strategies this wirehouse could offer him through his new independent broker /dealer. What's wrong with this picture? He gets sued for going independent, oh, but by the way, put money with us. We still want your business.

The advisor shared with me that he left the wirehouse not because of fellow colleagues, but due to concerns about how the firm was managing their own investments. As he stated, "How could I tell clients that we know how to manage their money with our firm's strategies when we are making headlines about our firm's losses in sub prime mortgages?" " What example does that set?"

The advisor had contacted me because he had heard me speak at a conference in which I stated that we were rapidly approaching the crossroads where a financial institution would have to decide if they were in the investment banking,hedge fund business along with product development for their firms's strategies or in the advice business. If they choose the first choice, where does that leave their advisors? How many financial advisors would be stunned to learn that they were being spun off or just discontinued? I am sure many of them do not have a business plan in place or the systems and processes to proactively support it.

This is why we tell advisors that regardless of what type of financial institution you work with...Bank, insurance,wirehouse,or independent, you are a business model and need to run it like a business. That way, you are confident and prepared for the changes we are seeing and for the ones to come.