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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12 Responses

  1. FA and MD Salaries

    According to the above post, each FA has 78 clients using the AUM compensation model. If each client has $300,000 in AUM, then the FA manages about $23,400,000. At an advisory fee of 1%, this means $234,000 in gross income for the FA.

    Now, if office overhead is 60%; the FA has compensation of about $ 93,600 annually. And, at 50% overhead, it’s $117,000. This is not too shabby for someone with a GED or HS diploma. And, these are pretty much industry statistics; on average – before the financial meltdown.

    Currently, if AUMs have been reduced to $150,000 [below the minimum account level for many FAs in the past], we can see how hard they have been hit. You do the math, but remember, overhead is typically a fixed expense and these costs must be paid first. So, FA take-home pay is indeed plummeting.

    Nevertheless, the truism remains that if you are lightly or relatively un-educated; sales is the space to occupy. And, don’t forget that an FA can start his career at age 20; not age 30 like most MDs. And, without the school debt – and as agent or representative of another – s/he has fewer personal liability worries, as well.

    Hope Hetico; RN, MHA
    [Certified Medical Planner]


  2. I am a general securities representative, Series #7, licensee. I am a representative of my BD. I sell their financial products. I am not a fiduciary; nor am I an advisor. I am a stock-broker, with an agent’s duty to my company, not the client; and am proud of it. I am also not a CFP. But, I never sold anything improper, although given the chance to “push product” on more than a few occasions. I am honest, hard workings and can live with myself.

    Philosophically, we are all conflicted. Even doctors “sell beauty” to patients who want, but do not need, their plastic surgery services.

    Nevertheless, with the greed and collapse of Wall Street, lack of FINR and SEC oversight, I realize that times are changing – and probably must change if the industry is to survive. The future is with better educated fiduciaries, and RIA’s; certification marks be damned.

    But – not for me – just the younger generation. I will be able to retire in a few more years; so best wishes to you all.



  3. Graham,
    Spoken like a true mensch; I mean schmuck!


  4. Sidney,

    Professor Elizabeth Warren of Harvard Law School, proposes a Financial Product Safety Commission, modeled after the consumer product safety commission. Its’ goal is to keep poorly designed financial products, like mortgages out of the hands of the public.

    Is this a good ideal; absent fiduciary standards? Will this idea be enough to protect the public; since this job has been abrogated by the SEC, FINRA and the CFP BoS?



  5. James,

    In the April 20, 2009 issue of BusinessWeek, George Soros was quoted as saying;

    “Now comes the task of rebuilding the financial system from its foundations, because it was built on false premises”.

    To this I add; “including the CFP BoS”.



  6. James, and Rex etc.

    Look at the alphabet soup of financial services and “retail sales” certifications and designations that are “out there.”

    AAMS®: Accredited Asset Management Specialist; ABV: Accredited in Business Valuation; AIFA®: Accredited Investment Fiduciary Auditor; AIF®: Accredited Investment Fiduciary; AWMA: Accredited Wealth Management Advisor; CAIA: Chartered Alternative Investment Analyst; CAPP™: Certified Asset Protection Planner; CEA®: Certified Estate Advisor; CEP: Certified Estate Planner; CFA®: Chartered Financial Analyst; CFM: Certified Financial Manager; CFP®: Certified Financial PlannerTM; ChFC®: Chartered Financial Consultant; CIMA®: Certified Investment Management Analyst; CIMC: Certified Investment Management Consultant; CLU®: Chartered Life Underwriter; CMFC®: Certified Medical Planner®: Chartered Mutual Fund Counselor; CMTsm: Chartered Market Technician; CPA: Certified Public Accountant; CRPC®: Chartered Retirement Planning Counselor; CPWAsm: Chartered Private Wealth Advisor; CSA: Certified Senior Advisor; CSSC: Certified Structured Settlement Consultant; CVA: Certified Value Advisor; CWC: Certified Wealth Consultant; CWPP™: Certified Wealth Preservation Planner; JD: Doctor of Law; LTCP: Long Term Care Professional; MBA: Master of Business Administration; MBT: Master of Business Taxation; MMB: Master Mortgage Broker; MSFS: Master of Science in Financial Services; Ph.D.: Doctor of Philosophy; PFS: Personal Financial Specialist; RFC: Registered Financial Consultant; RFG™: Registered Financial Gerontologist

    Makes me dizzy. Did I miss any?



  7. Is a Battle is Brewing over 401k Plans?

    Great post Dr. Marcinko

    Did you know that some folks who are changing jobs, being laid off or retiring are finding themselves in a tug of war between their former employers and investment firms eager to win their business.

    At stake is almost $400 billion of assets under management in 401k’s and 403-bs [healthcare professionals] and similar retirement plans that are eligible to be rolled over into other vehicles this year, according to Allianz’s Pacific Investment Management, or Pimco.

    Read more:

    In the past, the old employer couldn’t get rid of the retirement plan assets fast enough; now the benefits managers, FAs and company see it as an Assets Under Management [AUM] revenue source.



  8. Did FINRA director ‘doctor’ records before SEC inspection? [3 for 3 scandals]

    For the past few months, FINRA has been actively promoting itself as the best choice to oversee the compliance of investment advisers. But, the recent announcement that the SEC has ordered the regulator to improve its own compliance won’t exactly bolster FINRA’s case. Neither will the revelation that a FINRA director allegedly doctored records that the SEC wanted to examine.

    BTW: Wasn’t the first SEC chairman Joe Kennedy; and who was that infamous NASD/FINRA chairman again … can you say Bernie Madoff?

    And, it was only a matter of time before NAPFA’s reputation would be tainted in the national media.

    Of course, this was after the May 23, 2011 NAPFA marketing campaign called “The Power of Trust”—a theme the organization hopes will build upon its fee-only, client-first principals.

    Dr. Clyde


  9. FINRA and the SEC

    According to Michael Zhuang of The Investment Fiduciary blog, FINRA, the so-called self-regulatory body of stock-brokers, has no teeth. It is primarily there to serve the brokers’ interest.

    And, what worries us both is that Mary Schapiro, the new SEC chairman, was president of FINRA. I am afraid investors really have nobody to protect them other than themselves.

    Dr. Hunan Cho


  10. Most Financial Advisors Will Charge Flat Fees?

    Dr. Marcinko – Columnist Bill Bachrach says rapid change in the financial services industry will make flat-fee compensation the “new normal” for financial advisors.

    So, the retail industry is not gone; just changing as you predicted.



  11. RIA on FINRA Board Resigns

    Joel Blumenschein, a Wisconsin RIA, has resigned from FINRA after settling a disciplinary case alleging he failed to supervise a broker at his firm.



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