Standard Distinction

One of the things we harp on at our firm is abiding by a fiduciary standard. This standard compels us to always act in the best interest of our clients. In our business, that means recommending investments that we believe will best achieve a client’s goals regardless of how transacting in those investments effects our bottom line. As professional purveyors of advice we believe it would be disingenuous, if not downright wrong, to provide anything but objective guidance. We also believe it sets us apart from large wire house brokers and advisors who are not held to that same standard.

Take for example this article posted on Dealbook last week regarding Morgan Stanley’s retail advisors. Colm Kelleher, who heads Morgan Stanley’s investment banking division, spoke to the firm’s advisors during a recent retreat. The message Mr. Kelleher delivered boiled down to this:

“His group can work with retail brokers to increase profits at Morgan Stanley.”

The focus of the article was Morgan Stanley’s previous failed efforts to get the two divisions to work together, but notes:

“Gregory J. Fleming, the chief of the brokerage business, and Mr. Kelleher have been under pressure from shareholders to coax greater profits from the low-margin brokerage business by finding ways for retail and investment banking to work better together.”

I am sure there are excellent Morgan Stanley advisors who make it a point to act in the best interest of their clients, but when those at the very top are feeling pressure to “coax greater profits from the low-margin brokerage business,” it’s likely that client facing advisors are feeling even greater pressure from their immediate bosses. Those advisors are held to a “suitability rule” which doesn’t require them to act in the client’s best interest but to demonstrate that the investment recommendations be suitable for the client’s situation.

If that sounds like an insignificant semantic distinction, I assure you it’s not. If you are trying to light a fire, matches are your best bet – two sticks are suitable. As regulators restrict risky trading practices at large financial institutions, those institutions will start to look at more traditional means of growing profits, which could mean renewed focus on growing margins in the retail wealth management segment.

HighTower advisors, while technically a competitor, has a video that puts a fine point on this issue: Going to a broker for financial advice is like going to your butcher for nutrition advice. Check it out:


Source: DealBook “Morgan Stanley Strives to Coordinate 2 Departments Often at Odds”.

Neil Gilliss, MBA, CFP

Neil is the founder Canal Capital Management and serves as the firm’s President and Chief Investment Officer. As head of the Investment Committee, he focuses his attention on the firm’s overall asset allocation.

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