Sirianni: Toxic Culture
The AdvisorHub Culture survey is the first of its kind industry benchmark. As such, it tended to confirm much of what we have suspected about cultural attitudes all along, and gave a numerical assessment to differences of opinion by advisor/firm type that is irrefutable.
First the good news. The vast majority of advisors (88%) feel that culture is important, and 76% are proud of their firm’s culture. The bad news is that the wirehouses appeared to fare the worst.
Only 43% of wirehouse advisors said they feel pride in their firm’s culture, lower than the 82% at independent and regional firms. When looking for wire advisors that are strong proponents of their firm’s culture the news is even worse, as only 16% of them strongly agree that they are proud of their firms.
Combine these statistics with those from Cerulli and others that demonstrate that the Independent channels are growing annually at the expense of the wires, and one can easily draw a causal connection.
What is so frustrating about these numbers is that the Wires are suffering from self-inflicted wounds. Rather than take a hard look at the net results of ignoring culture, they are taking the counsel of consultants that don’t understand our business, and doubling down on self-defeating policies that end up shooting them in the foot again and again.
To me, one of the most overlooked or under-appreciated elements hurting culture at the big firms is the temporary restraining order and client solicitation battle.
Don’t get me wrong, a TRO may be necessary and even deserved under contractual circumstances like advisors who bail on sunset agreements, or those for whom the bank or firm provide the advisor with clients and leads. However, for the average entrepreneurial advisor who built her own book, it’s a travesty.
An Illustrative Example
The TRO is good example of a bad idea creating its own inexorable logic. Fifteen and more years ago big firms used TROs against each other in a hypocritical tit for tat meant to slow down the recruiting process. It was so wasteful and time consuming that firms ditched the TRO for the Broker Protocol.
Then the Broker Protocol ran up against the Independent Movement, and lost. Wire execs, who saw that RIAs were claiming protocol protection and “gaming the system,” dropped the Protocol and revived the wasteful and time consuming TRO.
Why? The theory ran that aggressive legal action would scare the small nascent RIAs nipping at their heels. This combined with aggressive anti-advisor firm contracts in sunset provisions, employee handbooks, and team agreements would lock the back door.
It hasn’t worked. But I believe it has ushered in–perhaps intentionally–more paranoia and eroded loyalty even among those who remain at the firms.
The wires seem to not want to learn the lesson: You can’t defeat an idea with a TRO.
The TRO Paradox
The TRO has no place in the independent movement, and is alien at most Regionals and new national firms. As the independent movement grew, its cultural imperatives were adapted by, or one could argue were always present, at the Regionals and other new national firms like Stifel and LPL.
This leaves the wires and big banks all alone in their use of TROs. The standard has shifted, it’s no longer the norm, or acceptable culturally, for firms to pursue extraordinary legal options to stifle advisors’ ambitions or client movement.
Firstly, this is so because of the new age we live in. All TROs argue that advisors leaving their firms cause irreparable harm by taking client phone numbers. How can this be so in the digital age. Surely advisors have access on their cells to their clients contact information, as well as on their social media accounts. You just can’t argue personal client contacts are a firm secret when they are available worldwide on Facebook.
Secondly, you can’t interfere with the free market. Advisors are voting with their feet for the best platforms for their clients. They are going independent even when there’s no upfront incentive to do so, or even switching to other wirehouses for a better platform.
But as capitalists, we must let assets flow to where they are best served. Isn’t this “the clients best interest” to let the customer decide? How can they if their broker is hamstrung from connecting with them? If the customer isn’t happy with the new firm, they’ll stay behind.
One would think they at least deserve to choose where they keep their money. Surely the new regulatory administration will side with the client’s interest.
Lastly, the sheer unadulterated and un-American hypocrisy of a firm making an impassioned plea to a federal judge that an advisor changing firms with their client book will irreparably harm one of the largest financial institutions in the world, and then appearing before the same judge, on the same day, and arguing the exact opposite for an advisor that they themselves have hired from a rival bank is unsustainable.
Culturally, this feels like a chain smoking parent telling their kids not to smoke.
The bull market of the past decade has inflated assets and allowed firms to hide uncomfortable truths. More telling than asset growth though, is looking at how firms behave. The return of the TROs and inserting legal poison pills in documents shows wirehouses are afraid of attrition, but it doesn’t show that they know how to encourage advisors to stay.
The logic behind the TRO is just one example of toxic culture and short term narrow thinking. The big question the wires should be asking themselves is not— “How many assets have we gained in this bull market?” But—”How many more assets would we have if advisors stayed rather than left?”