The RIA industry – which is seeing explosive growth and increasing interest from investors – has always preached that it offers a superior way of doing business as compared to the brokerage industry. RIAs have looked down their noses at broker-dealers for decades. This might be the basic promotion and marketing pitch:
“Registered investment advisors, you see Mr. Client, act as fiduciaries for their customers, meaning the advisor has the obligation to place the hopes, wishes and aspirations, the overall best interest, first. The financial advisor’s financial interests are secondary. This is the better way to do business.
“But look across the street. The brokerage industry is filled with financial advisors only looking to gouge a client’s portfolio for commissions and profit. Brokerage firms don’t give a damn about the client. It’s part of the culture and DNA.”
To some extent, the RIA mindset is correct. The fiduciary standard is an admirable goal and potent business model. After 25 years of preaching the fiduciary standard, the public, in my estimation, is finally beginning to get it.
But RIAs are hardly as virtuous as they would like to appear, particularly when it comes to treating employees fairly, potentially doing harm to staff and their careers. That puts RIAs on par with broker-dealers, which have mistreated some financial advisors and personnel, particularly women and minorities, for decades.
Look no further than Kansas City, Mo., for an example of RIAs off the rails when it comes to employees.
InvestmentNews four years ago reported that, from about March 2014 to at least March 2018, American Century Companies, now with 1,400 employees and $72 billion in exchange-traded fund assets, violated US antitrust laws, according to a letter from the Department of Justice.
The company, which did not face criminal prosecution, "conspired to suppress and eliminate competition by entering into and managing a bilateral market allocation agreement with another firm with which it competes for asset and wealth management employees," according to the letter, which was addressed to Patrick Bannigan, American Century's chief financial officer.
In other words, American Century Investments had been rigging the game at the expense of its employees.
At the time, American Century set aside $1.5 million to compensate the victims of the rigged employment practices the company indulged in.
Fast forward to February of last year. At that time, a lawsuit seeking class action status filed by two employees alleged that Mariner Wealth Advisors was the other firm involved in the scheme.
Mariner Wealth Advisors is a giant registered investment advisor based in Overland Park, Kansas, and a leading buyer and aggregator of RIAs over the past decade. Mariner Wealth has $98.6 billion in client assets, according to its Form ADV.
“The purpose and consequence of this unlawful agreement was so that [Mariner Wealth, American Century and various related companies] could artificially depress their own labor costs, thereby depriving workers of the compensation they would otherwise earn in a competitive marketplace," according to the complaint.
"Defendants expressly discussed this shared objective with each other, and each of them knew that this was the conspiracy’s overarching goal,” the complaint alleged.
Like American Century, Mariner signed a non-prosecution agreement with the Justice Department and agreed to reserve $1 million to compensate the victims of the rigged employment practices.
Now, American Century and Mariner Wealth have move to settle the matter, offering those potentially harmed employees a $25.5 million settlement fund to end the ugly matter.
Wages are the largest expense at RIAs. And RIAs work as fiduciaries, which means they are on the sides of their clients. Sadly, they do not extend the same obligation to employees, at least in this case.
“Financial advisors working in the RIA sector need to pay close attention to how their pay and compensation is structure so firms can’t force them to stay put or use certain product as a priority,” said Scott Silver, a plaintiff’s attorney.
American Century and Mariner Wealth “continue to deny that they are liable for the claims asserted against them,” but have entered into this settlement “to avoid the further risk, expenses, inconvenience, and distraction of burdensome and protracted litigation,” according to a court filing dated July 28.
As this column has previously noted, the greater the growth in the RIA industry, the greater the responsibilities, to steal a line from Spider Man’s origin story.
The RIA growth story is not slowing down. In the future, it’s up to firms to make sure they live up to their responsibilities to employees.
Nine-month electronic trading freeze and share lending program at the center of dismissed claim.
Meanwhile, Rossby Financial's leadership buildout rolls on with a new COO appointment as Balefire Wealth welcomes a distinguished retirement specialist to its national network.
With a smaller group of companies driving stock market performance, advisors must work more intentionally to manage concentration risks within client portfolios.
Professional athletes are often targets of scam artists and are particularly vulnerable to fraud.
The brokerage giant tells Wall Street it will use artificial intelligence to reach clients it has never been able to serve — and turn the technology's perceived threat into a competitive edge.
As technical expertise becomes increasingly commoditized, advisors who can integrate strategy, relationships, and specialized expertise into a cohesive client experience will define the next era of wealth management
Growth may get the headlines, but in my experience, longevity is earned through structure, culture, and discipline
