RIP Retail Financial Services Industry

Demise Predicted for Many Financial Advisors

[Greed Induced and Wholly Self Inflicted]

By Dr. David Edward Marcinko; FACFAS, MBA, CMP™


[Founder, CEO, Managing Partner and Editor-in-Chief]dr-david-marcinko2


Stock brokers, financial advisors, investment advisors, Certified Financial Planners®, Wall Street broker-dealers, wealth management firms and their related practitioners and business models are obsolete and physicians investors, like everyone else, must finally wake up to the fact that these entities have incentives to sell financial products to benefit the seller; not the buyer.

Paretto’s Rule

OK; to not sound harsh, let’s use the 80/20 rule of Paretto; 80% of financial “advisors” seek self-interest over investor interest, despite industry ethical protests otherwise. And, I don’t want to indict everyone as there are some decidedly good folks out there; just not very many [<20%] – apparently. But first, a bit of history!

Brief Historical Review

In the 1970s, full-service brokers were compensated largely by steep commissions. This ended with the May Day decision of 1975 to allow market competition and transparency [Think Charles Schwab]. In the 1980s, mutual funds were all the rage, complete with their sales charges [loads] and fees, etc. When no-load companies began taking market share later that decade, Wall Street firms and big banks looked towards more creative offerings like private equity, gas and oil limited partnership, all sorts of commodities, annuities and closed-end funds. By the late 1990s, financial advisors marched their clients like lemmings into the tech craze. Every mature doctor remembers the physician practice management corporation [PPMC] aggregator, and practice roll-up model of 2000, as well. For their best customers – renamed and repositioned financial salesman – would offer a few shares of the latest hot IPO that could be flipped for a hefty profit in matter of days, or hours or minutes [Think PhyCor]. fp-book

The Flawed AUM Compensation Model

Throughout, the asset under management [AUM] compensation model evolved, as well. Of course, this was simply a cheaper marketing and sales derivation [1% versus 3%] of the older “wrap-fee” stock-broker discretionary commission model; now renamed “advisory-fees under management”. Yet, money is money, “juice is juice”, and fee commission slippage is just that – slippage. Others may wax more eloquently on this evolution than me, but you get the idea.

Products Sold; Not Purchased – That’s Why It’s a Retail Business

Retail financial products are sold, not purchased. These retail sales folks get paid. This is their job and source of making a living. They are not charity minded; they are not saints. They do not work for you. Financial advisors and Wall Street [like domestic healthcare] is conflicted, biased, and often not to be trusted. The SEC, FINRA-NASD, State and Federal agencies; certification firms and various SROs have been proven impotent, sleeping or incompetent in their protection of the individual investor. And, the current economic meltdown in virtually all asset sectors and classes worldwide, finally suggests same to even the most dimwitted among us.  

Doomsday Scenario of Modernity

I believe the retail financial sales industry as we know it, is doomed. Firms are collapsing as FAs leave the business for other [sales] sectors. Can retail sales be replaced; sure? Should it be replaced; only if there is a better model out there; otherwise dis-intermediate, or DIY and fergetaboutit!  In fact, according to outspoken Jim Rogers, of the legendary Quantum Fund and now based in Singapore;

“Stockbrokers will be driving taxis. The smart ones will learn to drive tractors, because they’ll be working for the farmers.” 

Source: BusinessWeek

March 9, 2009.

My Triad of Recommendationsbiz-book

And so, these three simple, but not so easy to implement steps, would go a long way to restoring confidence in the retail financial services industry. Older miscreants are purged, and new entrants raise the bar; evolution at its best:

1. Define the term “financial advisor”. Make them possess at least a college degree; in some field. Although there is nothing magically intrinsic to a BA/BS degree, most suggest it signifies a certain ability to evaluate information properly and to think and critically analyze, rather than blindly accepting the “recommendations” of corporate sales managers, BD firms, OSJs, Wall Street and their employers. Independent thinkers tend to be less like lemmings, than not; more like leaders, than followers, etc. IOW: They may actually start working more for the client-investor.

2. Make financial advisors accept fiduciary accountability in the ERISA sense. No opt-out clauses, no BD exemptions or brokerage arbitration clauses; etc. No more word-games, definitional parsing or related shenanigans. Allow clients to sue financial advisor personally; not just the company. End the agency relationship model.

3. Eliminate or modify AUM and all compensation schemes. For example, why should investors give “advisors” cash to manage, and then pay some percentage of it to them in a negative interest rate environment; or trading discretion during a crashing stock market? The risk-tolerance flaws in this system are well known. And, higher net worth clients with more AUMs, do not mean more work, time or effort for the FAs; nor should there always be higher fees. Remember, the average FA has 78 clients; so you are not a special client. As flailing financial advisors exit the business, let’s replace the AUM compensation model with flat engagement fees, retainers, hourly fees, hybrid or composite fees, and/or claw-back AUM hurdles.

End the Long-Term Investing Marketing Hypeinsurance-book

The long-term marketing hype goes something like this, “if you make money, I make money” relative to most compensation arguments which are simply unidirectional shams. As is this emotional inflation argument for long-tem investing; “What keeps me up at night is that you will outlive your assets”. Which really translates to; “I hope you live long and prosper so that I don’t loose your cash flows, commissions and/or revenue streams.”  PS: Wanna buy a variable annuity? Well, the outrageous incentive fees paid to those financial advisors who levered client portfolios 20 to 1 in the past, or brokers who bought/sold furiously when things were good, got blown up in 2008 and will not soon be the same.


To most laymen, the implication in the retail financial services industry was that its’ purveyors “added-value” to client relationships and somehow helped investors fundamentally, technically or through timing machinations that beat the market. Or, that a FA “seer” with strategic alliance partners would somehow help clients ascertain when to jump between stocks, bonds, cash or the dozens of other asset class tranches – and new fangled products – based on some superior knowledge, analysis or insight; OR, because of  what they see – or can’t see – in their crystal balls. Yet, even the blind now know that the advisor-emperor has no clothes and the seer’s crystal ball has gone dark. Sales, not counsel, ruled the day. But, hopefully not any more; at least not for medical professionals, colleagues and those of us in the healthcare space! We know better; or should!


And so, your thoughts and comments on this Medical Executive-Post are appreciated. How can we reform the retail financial services sales industry; or should we? IOW: How do we make the financial advisor “earn his money every time” – just like the medical professionals they often try to portray; but can not. Is this the end for retail financial advisors – or another new beginning?

Full disclosure: I am a former insurance agent, registered investment advisor; board certified surgeon and Certified Financial Planner™. I am also the founder of, the only educational certification agency that requires a college degree, fiduciary accountability and peer-reviewed publishing for licensure. Talk to me, today!   

Speaker:If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: 

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