A champion of the fiduciary standard sought to drive a wedge between brokerage and advisory firms today.
A champion of the fiduciary standard sought to drive a wedge between brokerage and advisory firms today.
Maria Elena Lagomasino, chief executive of GenSpring Family Offices LLC, the largest registered investment adviser, with about $11 billion in discretionary assets, has written a white paper, “Not All Advisors Are the Same — How Can You Tell the Difference?”
The paper will be distributed to GenSpring clients next week, Ms. Lagomasino noted. GenSpring, which is majority owned by SunTrust Banks Inc., has more than 5,000 accounts, according to its most recent ADV.
In the paper, Ms. Lagomasino seeks to educate readers on the history of the regulations separating banks, brokers and investment advisers, and how, as she puts it, the lines became blurred.
After the Glass-Steagall Act of 1932 was repealed in 1999, Ms. Lagomasino wrote, “brokerage rules and a brokerage mindset — otherwise known as a ‘sales culture’ — swept through the banks, eventually overtaking the prevailing and predominant fiduciary culture which had existed in the banks’ private-banking groups.”
“Though many private bankers intend to put clients’ interests first, it has been my personal experience that the new sales-oriented business model trumps words and good intentions,” she wrote.
Ms. Lagomasino, who has been chief executive of GenSpring since November 2005, was formerly chairman and chief executive of J.P. Morgan Private Bank and prior to that was head of Chase Manhattan Private Bank. She joined Chase in 1983.
Ms. Lagomasino is specific in her paper, laying out the letter of the fiduciary and suitability standards.
“If I had to choose two words to convey the stark contrast between different types of ‘advisers,’ it would be these: ‘fiduciary’ and ‘suitability,’” she wrote, “Understanding these two words will give you the power to understand who is your advocate and serves you, versus who sells to you.”
She presses clients and other readers to find out about how their advisers or brokers are operating by obtaining from them, in writing, answers to questions such as: “Are you obligated to put my interests before your own or your firm’s, at all times, as a fiduciary to me?”
Ms. Lagomasino also wrote in the paper that brokers stand to lose a great deal in terms of earnings. She notes in the paper that one analyst estimated that Morgan Stanley Smith Barney LLC could stand to lose about 6% to 7% of this year’s anticipated earnings if they operate under the fiduciary standard.
“No matter what the words are,” Ms. Lagomasino wrote, “if the business (economic) model is built around selling proprietary products or being paid to distribute someone else’s products, then the clients’ best interest is secondary to the economics. So my experience is that the only way to be a fiduciary is to be paid that way — paid to put the interests of the families first.”
She also plans to use upcoming speaking engagement to talk about the fiduciary standard and the difference between brokers and advisers, she added.
Ms. Lagomasino along with other family office industry executives also recently signed “A Call to Apply the Fiduciary Standard,” from The Committee for the Fiduciary Standard.
