Outside-IN

Outside-INblog

Outside voices and views for advisers

Say goodbye to IBDs, and hello to 'IAB firms'

"Independent advisory and brokerage " is a more precise description for firms with proper fees and services

Nov 13, 2017 @ 10:01 am

By Richard J. Lampen

Sometimes inertia wins the day on issues such as nomenclature. Perhaps one of the most obvious examples of this can be found in how many independent firms across the retail financial advice space continue to describe themselves as an "independent broker-dealer (IBD)," despite growing discomfort among firms and advisers with this term.

Perhaps the time has come to revisit this particular nomenclature issue on an industrywide basis.

Names and labels in this context are significant, as they signal to advisers the kind of approach and support they might reasonably expect from a firm.

Today, continued use of the IBD term potentially does a disservice to our industry, especially when so many independent firms have already embraced fee-based advisory services. The move away from transactional and product-driven business is well advanced, so there is no better time than now for our industry's firms to reflect this in how we refer to ourselves.

What would be the best possible alternative to "IBD"? Based on a cross-section of discussions conducted at Ladenburg Thalmann's recently concluded fee-based advisory conference, ELEVATE, we believe firms across the independent space that have truly embraced the fiduciary era should use the term "IAB" – independent advisory and brokerage – as a much more precise description of who we are and what we do.

Determining whether a firm should call itself an IAB or an IBD can be as simple as looking at the organization's asset mix, solution sets for clients and commitment to supporting financial planning-based, long-term client relationships.

FEE-BASED ASSETS

While most independent firms, in an effort to remain as competitive as possible, would like to position themselves as "advisory friendly," not every organization can credibly make this claim on the basis of fee-based advisory asset levels.

A core benchmark to consider is whether at least one-third to half of a firm's client assets are fee-based advisory assets. Less than this range could potentially call into question the firm's real commitment to the fee-based advisory space.

At the same time, having a robust fee-based advisory business should not mean that firms are forced to relinquish the ability to provide advisers and their clients with ready access to any brokerage activities in the future, should such needs arise.

ADVISORY AND BROKERAGE

This, in turn, brings us to a simple but powerful point: The new fiduciary era for our industry does not necessarily need to be defined by a blanket avoidance of all brokerage activities.

Rather, the fiduciary era should be about ensuring advisers have the ability to thoroughly understand and support each client's specific needs. This makes it mission critical for advisers to easily access the widest spectrum of potential solutions for clients, and sometimes this may include brokerage-based investment solutions.

Consider, for example, retirees who face the prospect of outliving their investments, in part due to interest rates that remain at historically low levels. For many of these clients, plain vanilla equity and fixed income investments by themselves may not offer sufficient retirement income, nor adequate protection against longevity risk. Many investment vehicles designed to act as income solutions for retirees, such as annuities, continue to come predominantly from the brokerage space.

HOLISTIC PLANNING

The third crucial attribute of an IAB should be whether the firm ultimately recommends that advisers develop and implement a holistic financial plan for each of their clients, articulating this as a high priority service offering that supports the end clients' best interests.

Ideally, each client's financial plan and the goals stipulated by the plan should drive adviser decisions on how to best use advisory solutions, brokerage solutions, or both to deliver what the client needs.

It is remarkable how rapidly and successfully many independent firms and their advisers have adapted to the industry's new normal, particularly with embracing expanded fee-based advisory work while retaining the flexibility to deploy brokerage solutions for advisers and their clients if needed.

Times have changed. The good news is our industry has largely succeeded in changing with the times, and that is why the moment has arrived for us to shed outdated labels and embrace our status as independent advisory and brokerage firms – in fact and in name.

Richard J. Lampen is President and Chief Executive Officer of Ladenburg Thalmann Financial Services Inc.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Nov 13

Conference

Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

Events

Transamerica's Boan: Crafting better retirement income conversations

Retirement income is a challenge for investors. How can advisers have better conversations about retirement income? Transamerica's Joseph Boan offers insights and tips for advisers.

Latest news & opinion

Cambridge Investment Research bags mid-sized broker-dealer

Broker Dealer Financial Services, an IBD with 150 reps and advisers, and $3.5 billion in assets, will become a Cambridge OSJ.

HighTower on prowl for new CEO, Weissbluth to become chairman

Move is latest in Chicago-based RIA consolidator's effort to expand senior leadership team.

What's in a name? For TCA by ETrade, everything

Trust Company of America is gone, and there's big buzz over the name change. But turning the custodian into an industry powerhouse will take a lot longer — if it happens at all.

When it comes to regulating AI in financial services, murky waters are ahead

Laws are unclear on how the technology fits in with compliance.

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print