The following post was emailed to me by a trainee financial advisor working for a major financial services firm in the north east. The identity will remain anonymous as the person is still employed by their firm. Please note, this is one persons opinion of their experience. The opinions herin are not necessarily the same opinions that fabeetle shares. That said this is a fairly well written, detailed account of this advisors experience. There are good and bad advisors at every firm and as stated fabeetle's mission is to provide a platform where the truly talented and experienced FA's and firms can emerge from negative perceptions and connect with an educated customer who is actively seeking that expertise.

Twenty five years ago the big broker/dealer brand names were a sign of wealth, affluence, status, and sophistication. People would look to find an opportunity to brag about their guy at ….. In today’s world of modern technology the information edge that many full service brokerage firms had is quickly eroding, and to an extent what is in the best interest for the client and what is in the best interest for the advisor are moving in different directions. Working for a large brokerage firm through the great recession of 2008/2009 began to bring this to light.

Most firms have been progressively driving their advisors to manage clients’ assets using a wrap account, which charges an annual fee of on average 1%. This fee covers all advice and transactions in the account as opposed to the prior industry model of commission based transactions when recommended by the advisor. This provides great benefit to the brokerage firms by generating a more consistent and foreseeable revenue stream. This sounds like a simple, beneficial, and streamline model for both parties and it was during the bull market going up through most of 2007 when everyone wanted to be fully invested in the Dow at 14,000. The problem in this model arises when we look at the slow downward spiral that became a market crash erasing over 50% of market value at its lowest point. In the old market model if a client wanted to move to safety and the advisor felt it was a prudent choice they could sell out as much of a clients holdings for cash as they felt necessary. This would in turn produce a transactional commission for the advisor (beneficial to both parties). Under the wrap account model with large brokerage firms the advisor is not paid on cash inside the wrap account (Independent Advisors do charge the WRAP fee on cash). This is a problem because in a precautionary situation the burden now rests with the advisor to do what is best. What is best for the client or the advisor? An advisor under this system must choose between whether to be more cautious with a client and sacrifice their income and lifestyle to save the clients’ money, or sacrifice the clients’ money to continue to get paid. This is a simple truth that most clients are unaware of.

The second problem for modern brokerage firms is their justification of higher costs for what they consider “full service”. They claim this includes access to top notch research, analysis, money managers, support staff, process, and advisors. These are all truths don’t get me wrong but at the most they are half truths. The average advisor transaction will go as such. A guy who couldn’t tell you the difference between a growth stock and a value stock is going to read you a Morningstar report about a mutual fund that he just heard about from the wholesaler in the conference room selling his fund of the week for a free lunch. He will proceed to tell you a few talking points about how much value this will add to your portfolio and that you should go ahead and make the move. In a wrap account there is no downside to this unless you should be in cash instead. If you are purchasing outside of a WRAP you are most likely buy C or A shares. With a C share he gets 1% of the purchase amount upfront and 1% annually as long as you hold the fund. With an A share you are paying him about 5% of the purchase amount upfront, but only .25% annually for the holing period. A shares have a lower expense ratio, but all in should not be used unless you plan to hold them 5-6 years or more. The flaw in this is that anyone with access to the internet can go to Yahoo or Google finance and look up a mutual fund's Morning Star report for free. In many cases they can then proceed to use a company like Fidelity and find no transaction fee funds. Your selection is more limited, but you have access to many prime funds. If you just want stocks low cost is the way to go, because with efficient markets a consensus research opinion would hold equal weight to what a big brokerage can offer.

The final problem is the way they train their advisors. If a trainee has no prior experience then they take study courses and in a couple of months they take FINRA licensing exams that qualify them to sell financial products. This is not near enough time for someone to truly be qualified to manage an individual’s financial future let alone hold themselves out as an expert. An advisor comes in to build a new book of business and is paid a salary. The trainee then has a specific set of goals in terms of revenue generated and other items that they must maintain in order to stay employed. This is a reasonable trade off. There are some hang-ups to this process. In many cases trainees do not know how many products pay them, and they do not know toward what goals they count. In many cases those answers are hard to come by and time consuming to find. This presents the same type of conflict as a WRAP account. The trainee is consciously or subconsciously considering their own goals and needs along side those of the client. This level of conflict of interest along with the awareness of an industry wide extremely low success rate delivers a very high level of physical and emotional stress, which drives some individuals to develop unnecessary partnerships with senior advisors who have no interest in the trainees’ success. They allow for use of their name and experience for a percentage of the revenue from the partnership and control of the client if the advisor does not succeed in the training program.

In summation it is clear that the future is to leave a broken system behind and try to progress with a new model for financial services. The low cost firms, and RIAs are the way of the future. Their models’ remove conflict of interest and lower client costs. Today’s DIY investors look to prosper in the future by utilizing the tools of today.