Tag Archives: brokerage firms

Breaking Away from the Big Box Store

A new independent RIA (Registered Investment Advisor) sat down for an interview recently about the reasons he left one of the major investment firms. We found most of his reasons familiar because they are the same reasons we set up our own independent firm five years ago.

Here are some of the things he said.

The financial world has changed ….

Besides working at [three different firms I have] more than 30 years in the business. Post–financial crisis, the world around us has dramatically changed. Over the past several years, I’ve seen former colleagues leave to start their own practices. They were doing so well that about two years ago I started seriously exploring my own options.

He likes the freedom of independence …

At [his last firm] I found their support a little cookie-cutter in nature. As part of an organization serving about 7,000 other advisors, I felt like my practice was being forced to manage our clients in a way that appealed to the lowest common denominator. … I still felt limited in what type of services I could offer my clients.

Simply helping business clients connect with bankers, lawyers and other professionals can prove very beneficial. At [Big Box Store], I had to make sure to refer outside businesses only if they met with the wirehouse’s approval. I found that somewhat limiting. … So being able to control my own referral network should create more opportunities to provide a broader network of value-added contacts to clients.

What else can you do that you have not been able to do before?

A big advantage of being independent is being able to advise clients with assets held at other institutions. But we’re also finding more freedom in other areas. For example, one of our clients owns a business that lends to farmers. He has asked me to help open a new line of credit worth about $30 million and shop for the best deal. With another client, we’re helping him interview investment bankers and begin a formal process to sell his software business, which we think is worth between $40 and $50 million.

At Korving & Company, a lot of what we do for our clients has nothing to do with investment management. Right now we are helping a recent widow gain control of her financial affairs. She asked us what we owe her for our services. As a client, there is no extra fee; it’s part of our holistic service model when we act in our fiduciary capacity.

If your financial advisor works for a major firm he is constrained – in many ways – by the limitations placed on him by his employer. Give us a call and see what independence can do for you.

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What makes us different?

When most people think about investment firms with tens of thousands of “investment advisors” they think of people who call them up with recommendations to buy a stock or bond for their account.

But what’s the objective? What are you trying to accomplish? Will his recommendation take you closer to your goal, or farther away? What’s his motivation for the suggestion?

Think about getting on an airplane. You want to go the Phoenix. Does the pilot ask you what route you would prefer? How fast he should fly?  How about a detour to Minneapolis?  If he did, you would probably get off the plane. It’s his job to pick the best route in the shortest time and with the least risk.  That’s what you’re paying him for.  You want him to do the flying, you expect him to get you there without your input.

That’s what a real financial advisor does for you. He doesn’t suggest buying or selling stocks, bonds or mutual fund. He picks the best investments that will lead you to your goal and keeps you advised of your progress. He’s not selling investment products, he’s taking you to your destination in the best way possible.

At Korving & Company we ask you what your destination is, what your goals and dreams are and then put together a plan … and a portfolio that’s designed to get you there with the least risk in the time of your choosing.  We are Certified Financial Planners (CFP)™

That’s what makes us different from the Big Box stores. Check us out on the web.

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Acting in the best interest of the client

FINRA – the Financial Industry Regulatory Authority – has come out strongly stating that most compliance problems would be eliminated if investment firms acted in the best interest of their clients.   It may surprise you to learn that this is not a requirement for the major brokerage firms.  The brokerage industry must only insure investments are suitable for clients.  There are lots of investments that are “suitable” but not in be in your best interest.

For example, an annuity may be suitable for a client but it may not be in the client’s best interest.  Many brokers are encouraged to sell these investments because they earn large commissions.    The typical broker has many opportunities to choose between products that have different commissions.  You can imagine the temptation to choose the product with the highest commissions.

“A central failing Finra has observed is firms not putting customers’ interests first,” ….“Irrespective of whether a firm must meet a suitability or fiduciary standard, Finra believes that firms best serve their customers — and reduce regulatory risk — by putting customers’ interests first. This requires the firm to align its interests with those of the customer.”

Ask your broker if he is required to act as a “fiduciary” or is held to a lower “suitability” standard.  Korving & Company is held to the fiduciary standard and none of our revenue comes from commissions.

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Who Will Serve the Underserved? The Big Brokers Don’t Want Clients With Less Than A Quarter Million $$$

It’s been a trend at the big brokerage firms since 2008: the focus on the on the multi-millionaire and billionaire client. At Merrill Lynch, management has increased its effort to discourage their brokers from dealing with clients under $250,000. It simply won’t give its brokers their usual percentage of the commissions these clients generate.

From Financial Advisor magazine:

Merrill Lynch told its 14,000 brokers on Wednesday they will get higher bonus payments in 2015 for attracting new clients and assets but eliminated pay for servicing clients with less than $250,000.

Because Merrill Lynch is now owned by Bank of America, it is encouraging its brokers to have their clients buy loans, banking and trust products, or put into fee-based advisory accounts. Merrill brokers get cash bonuses if they do this.

This can certainly lead to a conflict of interest. Merrill is one of a growing number of firms that don’t want the younger, less wealthy clients. That leaves a great opportunity for the independent RIA community who are able and willing to service this under served cohort.

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