Market volatility represents opportunity to expand advice business: TD's Bradley

Since the beginning of July, the S&P 500 has moved 2% or more on 58% of the days that the market has been open. That kind of volatility is creating opportunities for investment advisers to expand their businesses, according to Tom Bradley, president of TD Ameritrade Institutional. “People are now seeking advice more, and they're seeking transparent, objective advice,” Mr. Bradley told the audience at the MarketCounsel Member Summit in Coral Gables, Fla., on Thursday. “We're seeing more money flow from the commission-based model to the fee-based model,” he added in an interview following his presentation. Mr. Bradley cited industry statistics showing that investment advisers are adding more clients as they shift from wirehouses to registered investment advisory firms. In addition, the number of fee-only advisers grew to 66% if the market in 2010, from 29% in 2005, while commission-only advisers dropped to 12%, from 35%. He used a hockey analogy to describe the move toward a fiduciary investment advice-based business and away from the broker-dealer model. “You guys are going to where the puck is,” Mr. Bradley told attendees at the MarketCounsel gathering. “It's what people want.” Mr. Bradley said that TD Ameritrade has seen the break-away trend first-hand. In 2008, 145 brokers joined TD Ameritrade, he said. That number is estimated to increase to 350 this year. Many of the brokers are looking to land at existing advisory firms, Mr. Bradley said. That means that advisers should upgrade and integrate their back-office operations to handle higher capacity. “They can handle more clients without increasing their expenses,” Mr. Bradley said. “Advisers have to make sure they stay on the cutting edge of technology.” Keeping up with technology also will help advisers tap into the Generation X and Y markets, Mr. Bradley said. Firm owners also should set up “reverse mentoring” programs where staff members in their 30s or younger teach older advisers how to communicate with their contemporaries. “Listen to them and have them start to develop the relationships with your investors' kids,” Mr. Bradley said. Another topic as important to advisers at the MarketCounsel conference as expanding their businesses is preparing for potential regulatory changes. Mr. Bradley is wary of what may emanate from Washington. “I'm afraid we're trying to pile on too much regulation,” he said. “We don't need more regulation. We need better regulation.” He doubts that it's possible to harmonize rules governing advisers, who must act in the best interests of their clients, and brokers, who are governed by a less stringent suitability standard. “I don't know how you do it,” Mr. Bradley said. “How do you take the sales model and jam that into the fiduciary model?” Like nearly every one of the 200 attendees at the MarketCounsel event, Mr. Bradley opposes a self-regulatory organization for advisers. He wants oversight to remain at the Securities and Exchange Commission. But he is skeptical of the SEC's assertions that it needs more money in order to increase the number of adviser examinations it conducts. The agency only reviews about 9% of the nearly 12,000 registered investment advisers each year. The SEC should improve its hiring and training of examiners, and upgrade the quality and efficiency of exams, Mr. Bradley said. Performance gains would come from running the SEC “like a business.”