Independent Broker Dealer Recruiter Jon Henschen’s article "How Proprietary Advisory Platforms Conflict With Fiduciary Standards"

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Jon Henschen in the September 21st, 2021 ThinkAdvisor article, “How Proprietary Advisory Platforms Conflict With Fiduciary Standards” speaks to how advisors rely on their broker-dealer to keep them apprised of new innovations and pricing values, but when pricing values are more attractive than the broker-dealer’s proprietary platforms, it is in the broker-dealer’s interest to keep advisors in the dark.

As effective as these tactics are at directing assets to their best profit centers, keeping advisors in the dark is even more effective. Jon Henschen

In the September 21, 2021 article in ThinkAdvisor “How Proprietary Advisory Platforms Conflict With Fiduciary Standards”

Henschen addresses how broker-dealer corporate RIAs have jumped on the proprietary advisory platform bandwagon at a rapid clip over the last five years. Having been approached by broker-dealers wanting assistance in recruiting advisors, with a focus on bringing advisors to them, not only with a large percentage of advisory assets but also assets that will specifically go into their proprietary advisory platform.

"It is uncomfortably common to hear advisors’ feedback on broker-dealer management telling them directly that they should put their advisory assets into their proprietary advisory platforms. But it is the more subtle ways the platforms are pushed that remind me of the days when insurance broker-dealers manipulated sales into their insurance products. Here are just a few of the tactics we see employed:

  • Company websites giving preferential exposure to proprietary advisory platforms.
  • Offices of supervisory jurisdiction receiving bonuses based on proprietary advisory client assets from the advisors they supervise.
  • Advisors consulting with advisory departments for guidance being steered to use their proprietary advisory platforms.
  • Offering incentives to direct more assets into proprietary advisory platforms, such as free services when you hit a certain asset threshold.

As effective as these tactics are at directing assets to their best profit centers, keeping advisors in the dark is even more effective."

Translating this to a broker-dealer RIA level, we’ve been active over the last year with a broker-dealer specialized in advisors with tax practices. Many of these advisors opt for the broker-dealer’s proprietary advisory platform that manages models using mutual funds and ETFs at a cost between 20 and 30 basis points.

"They also use NFS for clearing, but access to Fidelity IWS is not made available. Fidelity’s FMAX offering gives advisors an option to go from 20-30 basis points to zero, and you can opt for a broker-dealer that offers billing and performance reporting for around $50-$75 per account annually (no basis points on assets). The advisor will initially need to set up the models per the Fidelity model structure, but once in place, changes can be made automatically or customized by account if they so choose."

Some of the best ways to battle fee compression by lowering costs to clients, leaving the advisor with less pressure to lower their management fee. How does such cost savings translate with the broker-dealer RIAs that have proprietary advisory platforms? It doesn’t.

Jon Henschen is founder of Henschen & Associates, an independent broker-dealer recruiting firm located in Marine on St. Croix, Minnesota. With more than 20 years of industry experience, Jon is a staunch advocate for independent financial advisors, and is widely sought after by both reps and broker dealers for his expertise and advice on independent broker dealer topics. He is frequently published and quoted in a variety of industry sources, including WealthManagement.com, ThinkAdvisor, Investment Advisor Magazine, Wealth Management Magazine, Financial Advisor IQ, Financial Advisor Magazine, Investment News and others.

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