Podcast

Brian Hamburger and John Peluso: Perspectives on the Evolving Advice Business

January 13, 2021

Highway to the horizon with 2021 painted on it

Summary and Full Episode

2020 will go down in history as one of the most challenging periods of our time. But the New Year brings advisors a fresh opportunity to make a difference. In this episode, Brian Hamburger, MarketCounsel President & CEO, and John Peluso, First Clearing President, join host Bill Coppel — Managing Director & Chief Client Growth Officer at First Clearing — to explore the important role our industry can play in crafting the future.

In this episode, you’ll hear:

  • Key trends unfolding in the wealth management space
  • Why the move toward independence is accelerating – particularly in the Registered Investment Advisor (RIA) segment
  • How advisors are redefining their value in the 21st century

Transcript

Guest(s)
Brian Hamburger and John Peluso

BILL COPPEL Hi. This is Bill Coppel and welcome to The Next Frontier. It’s the beginning of a new year and what I love about a new year is that it’s a chance to start fresh. It’s a new beginning. So as we kick off 2021 here at The Next Frontier, we encourage you to stop for a moment to reflect on the past and consider what changes you may want to make personally and professionally. Clearly, 2020 will go down in history as one of the most challenging periods of our time. It’s affected our economy, it’s affected our health, it’s affected our ability to be gainfully employed, and it’s affected just about everything in our lives. And as we enter the new year, we still have a ways to go to put the impacts of this pandemic behind us. Despite the ongoing challenges, or maybe because of them, advice today is more valuable than it’s ever been and the opportunity for financial advisors to make a difference has never been more important. The question is, how should we be looking at the opportunity? What we do know is that how we’ve done things in the past is not likely to define our success in the future.

BILL COPPEL Today, I’m joined by two seasoned industry veterans representing a combined experience of more than 50 years, Brian Hamburger and John Peluso, to explore the questions we should be asking ourselves at this time and the important role that financial services can play in crafting the future. Brian is President and Chief Executive Officer of MarketCounsel, a business and regulatory compliance consulting firm serving some of the country’s top entrepreneurial investment advisors. He’s also Chief Counsel of the Hamburger Law Firm, a MarketCounsel affiliate, that brings a unique blend of business acumen and legal counsel to advisors, fintech firms, broker-dealers, funds, and their corresponding service providers as they navigate the complex issues faced by growing companies in a highly regulated space. John, a 25-year veteran with Wells Fargo Advisors and its predecessor firms, was instrumental in launching Profit Formula. The firm’s first foray into a form of independence. He then led Wells Fargo Advisors Financial Network, commonly known as FiNet, the firm’s independent channel, to become one of the most successful independent businesses in the country. Today he leads First Clearing, a business unit of Wells Fargo Advisors, serving broker-dealers and RIA firms. Before we get started, I want to share with our listeners that we invited Brian and John here for this conversation because the firms they lead are working together as they recognize the opportunity the RIA marketplace presents. Gentlemen, welcome to The Next Frontier.

BRIAN HAMBURGER Hey, Bill. Thanks so much for having us.

JOHN PELUSO Yeah. Glad to be here Bill. Thank you for the invitation.

BILL COPPEL Well, we thank you both for your time. Let me get right into it. What are some of the macro trends in wealth management you’re seeing and how are you interpreting them?

BRIAN HAMBURGER Well, Bill I’m going to– this is Brian. I’m going to kick things off here. And this is great because this is the first time that John and I have actually recorded a conversation, although we’ve had so many of them over the years. I’d split your question up into three areas. First is quite simply the markets. Volatility in the markets have always increased the perceived value, and I’d argue the actual value of objective advice. When everyone seems to be a champion and everyone seems to be an expert at managing their portfolios it’s amazing how they feel that they could have done that themselves. But markets have a big impact as the backdrop for all of this. The second area I would raise is clients. The graying of America has brought increased attention to who these clients have on their team. And people are starting to really understand that only information and bad advice is actually free. That objective advice has a real value, and clients are willing to pay for it. Neither global financial institutions, nor regulators can really stop the aggregate will of the people once that demand has been cemented in place. And then finally, we’re looking at a decade-and-a-half run of just major transformations with regards to technology and we’re seeing commoditized products and services are uncoupling, effectively allowing advisors to acquire everything separately. And that’s from brokerage to CRM and portfolio accounting and other computer applications, all the way to investment products. And even the communications, right? The voice over IP and the phones. Everything is scaling down to single users or five users, where an advisor can leave a large institution and largely have the same, if not better, capabilities than what they get just left behind. And the final thing that I’d add is that the pandemic has just poured gasoline on all of these trends. And so these macro trends that we saw coming into this year have really just accelerated like wildfire.

BILL COPPEL Thank you, Brian. John let me turn to you on this. From your perspective as heading First Clearing, a firm that really is working with broker-dealers, RIAs, and financial advisors in this rapid period of change, what are some of the trends you’re seeing and how are you interpreting them for your business?

JOHN PELUSO First, Bill, let me say that given our current environment the value of a trusted guide or financial advisor has become increasingly important. And I agree with Brian’s comments across the board and so let me just maybe add on to some of the perspectives that Brian added. And with regard to the trends, I see three things on the horizon and they help explain the growth we’re seeing in the independent space and the RIA model, in particular. So first is client demand is changing. Clients are continuing to want advice, probably more than ever, and they want it in human and electronic terms. So whenever they need it, in a variety of formats for issues that touch on many aspects of their lives, not just their investments, and from a perspective that puts their interests first. Second, is technology as Brian mentioned. Fintech is adding efficiencies and removing frictions in countless ways that will benefit advisors and their clients and permit greater levels of service. In addition to all the terrific things these tools and applications can do is the fact that they’re broadly available to advisors. No longer is advanced technology the exclusive province of the largest firms. Technology is being democratized and becoming available to all advisors at firms of any size and at prices that are increasingly affordable. And third, because consumer demand for advice is changing and the technology used to deliver that advice is also changing, the advisor’s role in that mix is undergoing a shift as well. If anything, the advisor’s new role is one that represents the ultimate endpoint in the shift away from the advisor as a product deliverer. The shift has been going on for decades. It’s not new. From advice being ancillary to a transaction. Transactions which have become free or virtually free are now ancillary to advice. And as we’ve said, clients expect and want that advice to go beyond investments to cover everything about their financial lives.

Intro Welcome to The Next Frontier, where we examine what the role of the financial advisor will be in a world that’s being disrupted by artificial intelligence and algorithms. Our mission is to spark new conversations that create stronger connections and build greater client confidence. Join us as we look at our industry and others through a new lens and explore the opportunities emerging at the intersection of high-tech and high-touch. It’s time for a new conversation. Are you ready?

BILL COPPEL Hi. This is Bill Coppel and welcome to The Next Frontier. It’s the beginning of a new year and what I love about a new year is that it’s a chance to start fresh. It’s a new beginning. So as we kick off 2021 here at The Next Frontier, we encourage you to stop for a moment to reflect on the past and consider what changes you may want to make personally and professionally. Clearly, 2020 will go down in history as one of the most challenging periods of our time. It’s affected our economy, it’s affected our health, it’s affected our ability to be gainfully employed, and it’s affected just about everything in our lives. And as we enter the new year, we still have a ways to go to put the impacts of this pandemic behind us. Despite the ongoing challenges, or maybe because of them, advice today is more valuable than it’s ever been and the opportunity for financial advisors to make a difference has never been more important. The question is, how should we be looking at the opportunity? What we do know is that how we’ve done things in the past is not likely to define our success in the future.

BILL COPPEL Today, I’m joined by two seasoned industry veterans representing a combined experience of more than 50 years, Brian Hamburger and John Peluso, to explore the questions we should be asking ourselves at this time and the important role that financial services can play in crafting the future. Brian is President and Chief Executive Officer of MarketCounsel, a business and regulatory compliance consulting firm serving some of the country’s top entrepreneurial investment advisors. He’s also Chief Counsel of the Hamburger Law Firm, a MarketCounsel affiliate, that brings a unique blend of business acumen and legal counsel to advisors, fintech firms, broker-dealers, funds, and their corresponding service providers as they navigate the complex issues faced by growing companies in a highly regulated space. John, a 25-year veteran with Wells Fargo Advisors and its predecessor firms, was instrumental in launching Profit Formula. The firm’s first foray into a form of independence. He then led Wells Fargo Advisors Financial Network, commonly known as FiNet, the firm’s independent channel, to become one of the most successful independent businesses in the country. Today he leads First Clearing, a business unit of Wells Fargo Advisors, serving broker-dealers and RIA firms. Before we get started, I want to share with our listeners that we invited Brian and John here for this conversation because the firms they lead are working together as they recognize the opportunity the RIA marketplace presents. Gentlemen, welcome to The Next Frontier.

BRIAN HAMBURGER Hey, Bill. Thanks so much for having us.

JOHN PELUSO Yeah. Glad to be here Bill. Thank you for the invitation.

BILL COPPEL Well, we thank you both for your time. Let me get right into it. What are some of the macro trends in wealth management you’re seeing and how are you interpreting them?

BRIAN HAMBURGER Well, Bill I’m going to– this is Brian. I’m going to kick things off here. And this is great because this is the first time that John and I have actually recorded a conversation, although we’ve had so many of them over the years. I’d split your question up into three areas. First is quite simply the markets. Volatility in the markets have always increased the perceived value, and I’d argue the actual value of objective advice. When everyone seems to be a champion and everyone seems to be an expert at managing their portfolios it’s amazing how they feel that they could have done that themselves. But markets have a big impact as the backdrop for all of this. The second area I would raise is clients. The graying of America has brought increased attention to who these clients have on their team. And people are starting to really understand that only information and bad advice is actually free. That objective advice has a real value, and clients are willing to pay for it. Neither global financial institutions, nor regulators can really stop the aggregate will of the people once that demand has been cemented in place. And then finally, we’re looking at a decade-and-a-half run of just major transformations with regards to technology and we’re seeing commoditized products and services are uncoupling, effectively allowing advisors to acquire everything separately. And that’s from brokerage to CRM and portfolio accounting and other computer applications, all the way to investment products. And even the communications, right? The voice over IP and the phones. Everything is scaling down to single users or five users, where an advisor can leave a large institution and largely have the same, if not better, capabilities than what they get just left behind. And the final thing that I’d add is that the pandemic has just poured gasoline on all of these trends. And so these macro trends that we saw coming into this year have really just accelerated like wildfire.

BILL COPPEL Thank you, Brian. John let me turn to you on this. From your perspective as heading First Clearing, a firm that really is working with broker-dealers, RIAs, and financial advisors in this rapid period of change, what are some of the trends you’re seeing and how are you interpreting them for your business?

JOHN PELUSO First, Bill, let me say that given our current environment the value of a trusted guide or financial advisor has become increasingly important. And I agree with Brian’s comments across the board and so let me just maybe add on to some of the perspectives that Brian added. And with regard to the trends, I see three things on the horizon and they help explain the growth we’re seeing in the independent space and the RIA model, in particular. So first is client demand is changing. Clients are continuing to want advice, probably more than ever, and they want it in human and electronic terms. So whenever they need it, in a variety of formats for issues that touch on many aspects of their lives, not just their investments, and from a perspective that puts their interests first. Second, is technology as Brian mentioned. Fintech is adding efficiencies and removing frictions in countless ways that will benefit advisors and their clients and permit greater levels of service. In addition to all the terrific things these tools and applications can do is the fact that they’re broadly available to advisors. No longer is advanced technology the exclusive province of the largest firms. Technology is being democratized and becoming available to all advisors at firms of any size and at prices that are increasingly affordable. And third, because consumer demand for advice is changing and the technology used to deliver that advice is also changing, the advisor’s role in that mix is undergoing a shift as well. If anything, the advisor’s new role is one that represents the ultimate endpoint in the shift away from the advisor as a product deliverer. The shift has been going on for decades. It’s not new. From advice being ancillary to a transaction. Transactions which have become free or virtually free are now ancillary to advice. And as we’ve said, clients expect and want that advice to go beyond investments to cover everything about their financial lives.

BILL COPPEL So what I heard from both of you is just a very consistent theme of the market instability and client demand are sort of intersecting and in these kinds of periods of time of uncertainty really amp up the need for advice and this is what clients are looking for. Technology’s playing a significant role in this shift. And at the end of the day what’s fueling this, as you mentioned Brian, is that we’re in the midst of a pandemic. So things are accelerating in terms of the speed of change in setting up an opportunity for our industry to really take a hold of this new idea of advice and run hard with it. And I also heard this from John, which is that the independent space is continuing to rapidly grow faster than any other model and particularly the RIA. And with that as a backdrop, talk to us about why this is happening. Why is this becoming the fastest-growing segment in terms of the RIA model and why now? So John let me go to you with that as you sort of mentioned that at the top of your comments.

JOHN PELUSO Okay. So I’ll share three reasons why I think the RIA sector is the fastest-growing. And the first has to do with autonomy and the ability to operate within a more nimble, local culture. When I work with top advisors who’ve become RIAs, they often say that the number one thing they gained was a more flexible client service model. Independent RIAs operate in an open architecture environment that allows them to choose and build their tech stack and have access to an array of products. With the ability to decide their policies and procedures and set pricing for their services, RIAs are free to build precisely the kind of business they desire. Second, is the opportunity to build a sustainable business and leave a legacy. A successful RIA business is truly a business, not a practice. It has enterprise value distinct from the efforts of any one individual and provides more options in seeking business capital to invest in the business. Building a business with a distinct culture and values establishes a legacy for family members, clients, and employees. And the third element is market demand. More and more clients and prospects are expecting and demanding the hallmark of the RIA experience, which is a fiduciary holistic level of care. For advisors who’ve always felt that the fiduciary hat was the one that fit them best, they can wear it full-time as an RIA. Given this demand, when we see advisors open up their own shops the replication rate, defined as the ability for them to bring clients that they want with them, is very high and those clients are bringing more of their assets to their advisors that are going the RIA model.

BILL COPPEL So Brian having heard John’s comments, what are your thoughts? How do you see what’s going on in terms of its timing? Why now and why RIA?

BRIAN HAMBURGER Bill, I’ve been at this for 20 years and I guess my question is is what’s taken so long? So I don’t know if I can answer why now. I will tell you I think that everything that John said is 100% spot on. I know it’s not that interesting when people are in vehement agreement with one another but I would have echoed his sentiments completely. I think the transition is often very understood for advisors and about advisors. I think a lot of the large financial institutions see this as a play about money. I think they think that advisors think that they are simply going to make more money. And I don’t think that that’s where it starts or where it ends. I think the reasons that John articulated, which is autonomy, the opportunity to build a sustainable business and leave a legacy and market demand are all the three principal things that are leading RIA being the fastest-growing advice model. Now, while I wholeheartedly agree and I think that advisors need to be fixated on their reason to make a move, not their reason why they– not what they’re running away from. I think that many advisors start by asking the questions of, why do they need to leave where they are right now? And the most typical response that I often get when I ask an advisor, they’ll say, “Well, I decided to leave when I determined that what I was paying my firm was more than what the firm was giving to them.” It was a simple economic argument that– most people don’t look at their roles and their relationship with their firm in that manner. They then would go on to ask questions like, “Has my firm restrained my growth over the years?” Or maybe said another way, “Am I paying for the sins of others where clients might be reading headlines causing the advisor to have to explain for the actions of others?” It’s about them wanting to gain more control. And so in response to a lot of that, I’ll go back to the reasons that John articulated and say, “Listen, the pain of your current firm is going to wear away, right? And so for us to have to endure a transition, we need to be going towards something that has a lot more upside.” And we start to focus on the issues that John has raised, which give them the energy to continue through any type of transition.

BILL COPPEL Well, Brian those are great points you’re bringing up and I think they add substantially to what John commented on. And so I want to kind of continue on that stream and go a little bit deeper with you. In terms of this, what are some of the things advisors should consider when thinking about whether to become an RIA? You talked about the economic question, and you talked about the service question and John talked about nimble. Let’s go a little bit deeper. If you were in the shoes of an advisor today, what are the questions, what are the things you’d be thinking about, relative to making this change? Because it’s certainly very attractive on the surface, right? But change is difficult.

BRIAN HAMBURGER Yeah. No doubt about it. Change is difficult. Someone once told me early on that when transitions go well, they go badly. Which isn’t to say that they go poorly, but there’s always things that either go wrong or are more difficult than people anticipate. And so we always start with the why. We always start with saying, “Why are you looking to engage in this transition?” And really help them identify their needs, goals, and objectives of the end destination. They’ve got to be able to frame that out. It can’t be a transition for transition’s sake. It has to be a journey to get somewhere specific. So Bill whenever we’re talking about the transition, that’s what I was referencing earlier, it can’t be that, “I just want to get away from where I currently am right now.” Because there’s a lot of easier ways to get away from where an advisor is right now. This is about traveling a more arduous path, taking a more challenging approach, to get to a place where they can have all of the features that John outlined. They can have the autonomy. They can have the freedom and flexibility. And that’s really exciting, but we don’t want to pave over some of the difficulties that are inherent in any type of transition over to independence to rebuild the chassis. John talked about something a bit earlier where he mentioned that advisors had the ability to create real sustainable businesses. What we should also talk about is that some of them don’t. Some of them merely tried to create their practice outside of their firm without creating real sustainable businesses and there has to be a decision to get to the level where they’re really running a business. And that’s a big commitment and often a change of stripes or responsibilities for the principal advisor who’s looking to make this move.

BILL COPPEL I agree Brian. And I want to go back John to you and get your thoughts on this, particularly around this notion of building a sustainable business. So when you think about counseling a prospective RIA, what are some of the things that you would suggest their thinking hard about before making this decision or as they’re making this decision?

JOHN PELUSO Yeah. First, Bill, I would say that– and just to recognize that going independent’s not for everyone. That’s for sure. So I think just to put that out on the table. Second, I really like the way Brian positioned it. Are you running away or running to something? And I think that’s a smart way to think about it. And I think that an advisor really needs to be running to the RIA model. And so I would challenge the advisor to be honest with themselves and I would suggest that maybe some questions that they could think about as they’re contemplating the move would be things such as, what’s your vision for the future of your business, of your practice? Is your team ready? Do you have the right skill sets and is your team prepared to make this leap? How aligned are you with your partners that can support you in this effort? Organizations like Brian’s who provide a tremendous amount of hand-holding and professional support. How does the whole idea of creating an RIA fit into your long-term plans as an advisor? And then finally, do you have enough knowledge to do this? And if not, where and who are you turning to for advice? And the final thing that I always want to counsel people on is to keep in mind that this really is about building and running an independent business. It’s not just about trying to increase your payout.

BILL COPPEL Couldn’t agree more. So Brian let me go to you with this next question, and I really want to ask this question from your perspective as, what I would call, an adviser’s advisor, okay? What are some of the challenges advisors face in transitioning to RIA and what are successful advisors doing to address those challenges?

BRIAN HAMBURGER Bill I’m going to start by just telling you we have already trademarked that term “Advisor’s Advisor” so don’t think of changing the podcast name to that.

BILL COPPEL Hey, Brian, I did my homework.

BRIAN HAMBURGER So this is a really, really tough one talking about the challenges that advisors face when transitioning. Because you then asked, what are successful advisors doing to address those challenges? So I wanted to break down your question because I think it’s an interesting way that you asked it. If you simply look at folks that move over to independence and you couple that with John’s statement that it’s not for everyone. You say, “Well the failure rate is close to zero,” right? You don’t see a lot of headlines which talk about independent firms making their way back to large financial institutions and there’s a reason for that. So I think what we have to do is we have to define what is success, right? Because every advisor’s going to have a different definition of success. Because if we simply define it as those businesses that don’t fail, well, I think we’re looking at it completely wrong. I think that we have to start out with the why, and we have to then track are advisors getting to the destination. Are they achieving the goals that they originally set out to do or did they simply not fail? So we have to look at it through, I think, a more complex lens than is often comfortable for us. There to some commonality amongst what I deem to be failures that are out there. First, is advisors sometimes have outsized expectations of what they need to do to compete with their prior firm. They think they have to be in the same type of building. They think they have to have the same level of client entertainment that perhaps their former firm had offered. They’re looking to compete at every level, often with firms that have far greater resources and capabilities than they do. And so going back to the original questions of why, really, it’s the advisor getting to know their own clients what’s important to those clients and making sure that they are not just providing something identical to what they left behind but actually providing something that is more valuable to their particular clients. The other big bucket that I look at in terms of advisor transitions that do not succeed is when the principal advisor is not ready to either shift their priorities and be ready to actually run this business or hire someone that can run the business and be willing to give up some type of control. And so it’s a mindset, right? It’s the principal saying, “I may no longer be able to be the leading advisor within this practice. I need to shift my priorities so that I’m actually running this business or going out and hiring someone that’s going to do so.” And when they decide to do one of those two things, they almost always win. But that’s a decision that a lot of them don’t consider before making the move over to independence.

BILL COPPEL Okay. Good things to think about. John, what are your thoughts?

JOHN PELUSO Yeah. I’m going to take the position of what I’ve seen exemplified by successful RIAs. And I think it falls into two buckets. And it would be skills and value. So the challenge for advisors is that they need to improve their aptitude in areas like empathy, listening, and authenticity. So as relationships deepen between advisors and their clients, it opens the door for the advisor to become the go-to person as it relates to a broader set of decisions that clients wrestle with. I often refer to this as “going beyond the balance sheet.” And particularly, the asset side of the balance sheet. So by managing beyond the balance sheet, I mean helping clients ask better questions of themselves. Introducing well-being concepts. Addressing longevity issues. Helping clients plan for the third half of their life. And advisors should consider adding to their suite of services things that are different than the traditional straight-up asset management. This would encompass things like caregiving advice and resources, how and where clients want to live as they age, and helping prepare clients both mentally and emotionally for their next chapter. There’s a whole industry that’s developing around this. And just two reference points would be the Modern Elder Academy and encore.org. Another challenge is the tension between price and value. We’ve been programmed to look for things on sale and so much of what we consume today is often marketed from a price-point perspective. So with this as the backdrop, competing on value is harder than one might think. I believe it’s not telling people what you do to create value or that you are valuable. That’s really no different than the billboard that you see along the highway. The most successful advisors demonstrate their value by their actions. For example, through their ability to be empathetic, their ability to listen, and their ability to help clients ask themselves better questions about what matters. For advisors who do these things, their value will become quite evident.

BILL COPPEL John that’s outstanding. Thank you. And you really took it well beyond the balance sheet. I think that’s a very important observation about what advice meets in the 21st century. So now I’d like to explore with you this. We’ve talked about what it takes to be a successful RIA from a skills and value standpoint as John pointed out. Now, let’s look at it from a business perspective. John, based on your experience, what are some of the keys to building a successful business?

JOHN PELUSO First, I wholeheartedly believe that you’re either growing or shrinking. You’re either going up, or you’re going down. There’s no in-between. There’s really no status quo. So it’s all about figuring out how to drive growth and the revenue will follow. So let me offer up just three simple principles. You can focus on profit. And we all know that profit is top-line revenue minus expenses. Real simple. $1 of expense must lead to more than $1 of revenue. In other words, you must bring in more than $1 in revenue for every $1 that you spend. That’s called operating leverage. Second, focus on growth. There’s two ways to grow. One, derive more revenue from existing customers. And second, get new customers. You must drive on both. The only reason businesses are not successful is because they don’t have enough customers. It’s not because of a lack of capital. And third, focus on people. The quality of your team determines the success of your business. Invest in your people. Either they get better or you have to go get new people.

BILL COPPEL Well said, well said. Focus on profit, growth, and make sure you have the right people. Brian, your thoughts?

BRIAN HAMBURGER I’m going to add a fourth one or I’m going to propose a fourth one, John. And I think the fourth one is focus on the client experience. I think there are times in an advisor’s lifecycle where they can’t focus on growth. They can’t focus on profit. They have to focus on the client experience because success begets success, right? If they have a successful client experience that client is likely to refer business to them. The great thing is advisors being independent often don’t have outside stakeholders, right? They don’t have to continuously show certain growth rates or certain profitability. The leaders of the firm can determine what’s appropriate for them. So what I urge advisors to do is to try and treat this like any other investment that they would make. And it’s hard for them, but it’s easy for them to analyze it when you start to get them into that mindset. So the decision to quote-unquote, “Go independent,” is ironically much about an investment itself, even though I know a lot of people would tell you otherwise, right? We’re initially looking for advisors to have the bravery to step off the ledge and invest in themselves. We want them to commit the capital to invest in their idea. An idea that they can go out and accomplish something greater than they could under a captive employment model. But that’s the cost. I mean, my grandfather always told me, “There’s no shortcuts,” right? The cost of your investment is table stakes here. There’s no alternatives. And this is hard because, as John alluded to earlier, advisors often are used to having things paid for by the firm by product wholesalers. This is about them writing a check to invest in their idea. Without it, without that single concept, the advisor should expect to be beholden to whomever their sponsor is, whomever is helping them fund their transition. So the question becomes, how much are advisors willing to invest in their professional success? One other aspect that I want to focus on is that independence lacks a lot of the traditional guardrails that advisors have become used to throughout the course of their career. Without them, advisors certainly have to exercise caution – not trepidation, but caution – around their activities. Unlike what their experience may have been as employees of a firm, they’re going to be guided by what’s possible not necessarily by what’s prohibited. And so I know there’s advisors who are making this move because they despise the practices of the firms that they’re leaving, but they’ve got to get all that out of their mind when they’re making this move because they themselves are going to be faced with the ability to create their own constructs. They’re going to decide how they want to restrict their own employees. How they want to supervise their own employees. What products what investment products to allow within the firm’s portfolios. What the firm’s investment methodology or strategy is. They’re going to have to decide all of these things. And it can’t be, “Well, I just don’t want what I left behind,” because the spectrum of possibilities is absolutely enormous. That’s where I think you continue to take the skills and value discussion into the implementation phase for these advisors going independent.

BILL COPPEL Thank you, Brian. I want to build on a couple of points you made there because I think they’re very complementary to what John mentioned but also very unique and very, very thoughtful. Particularly on the notion of, what is the right amount to invest in my business? And I like the whole concept of thinking about what’s possible as opposed to what’s prohibited. And that really leads to this whole notion of the client experience. So with that, how should advisors begin to think about leveraging technology, clearly an investment, in their formula for success? And more specifically, how is technology changing their role as advisors and the expectations of their clients, Brian?

BRIAN HAMBURGER Well, technology changes everything except the one thing that’s most important, which is the trust and confidence that clients have in their advisors. So at the top of our discussion, John alluded to automated investment solutions being complementary to the personalized services of advisors. And that’s what we’re seeing a lot of. Of course, there’s some advisors that are afraid of this automation, but automation is coming. Technology is the cornerstone of the business. And believe it or not technology actually defines an advisor’s practice. The good news about technology is, while it’s everywhere, it’s become astonishingly scalable. Advisors have to expect to pay for best-in-class technology because it’s very easy to select low-cost or free technology, as John alluded to. Finding something that’s on sale that’s actually sponsored by a service provider. Whether that’s a brokerage or custodial firm or whether that’s a product provider. And so having the autonomy costs money. Having the freedom certainly costs money. And advisors should be asking themselves, “Are they trading away the ability to select the best technology or the ease of things like a single sign-on and tight integration?” Which admittedly is far easier but then limits their ability to go out and pick and choose and hire and fire new technology as technology evolves. Advisors also want to look out on the technology side to make sure they don’t lose control over their data. The bottom line with technology is that free or low-cost technology has really become a dropbox for an advisor’s autonomy and really valuable and sensitive data that their clients have entrusted them with.

BILL COPPEL Thank you, Brian. John, your thoughts?

JOHN PELUSO It’s all about helping clients achieve well-being, I’m going to go back to that theme here today, and not about dazzling them with technology. I’d say that you need to focus on what really matters, which is relationships and life experiences, and the currency we trade for these is time. So helping clients identify what really matters to them allows the advisor to help them stay focused on the deployment of their most cherished asset, which is time. And I think that this is similar to what Brian stated earlier around the client experience. It may just be a slightly different perspective on that concept. The role of technology is to do those things that don’t require an advisor, leaving only the things one human can do for another. Clients don’t need their advisor for information about their portfolio or net worth or for getting price quotes or doing online scenario planning because they can access all of that right there on their smartphones. So just as Steve Jobs created technology we didn’t know we needed, I think advisors should be creating experiences that clients didn’t even know were possible that enhance their well-being.

BILL COPPEL Circling back to where we started, one of the things we acknowledge is that there’s a lot of change going on, right? And this presents an opportunity for innovation. In the first season of The Next Frontier, I had the opportunity to interview Hal Gregersen, and Hal is the Executive Director at the MIT Leadership Center, and along with Clay Christensen wrote The Innovator’s DNA. In Hal’s latest book, which is called Questions Are the Answers, and often Hal believes that the questions are more valuable than the answers because they’re the things that spark the new idea. So with that as a backdrop, what are the questions advisors should be asking themselves today that move beyond what we traditionally think of as advice, which is, as said earlier, ancillary to a transaction to define what advice means in the 21st century? Brian let me go to you first with that.

BRIAN HAMBURGER Bill I love so much of that. I think that could be its own session. This goes back to finding the why, right? Which is absolutely critical. Advisors, before they start to decide that they want to follow the trends that they’ve been seeing it written in the media or following the path that their colleague had previously taken they have to really sit down and do some soul searching and ask themselves, “Given that this is the next biggest move that I am making in my career, and likely the last significant move I’m making in my career, what do I want my legacy to be? How do I want to work with my colleagues? What type of experience do I want to provide to my clients?” They have to ask these really hard questions that don’t have easy responses in order to be able to know whether the move to independence is right for them and then how to execute that move to independence so they have all the right elements on there. Now, along the way they probably have to find their gurus, right? They’ve got to find those that are going to help shepherd them to that destination. And probably even more difficultly, they need to they need to quiet the noise, right? They need to be able to filter out a lot of the stuff that they’re reading or a lot of what they’re seeing online, creating a lot of unnecessary fear and a lack of guidance or even misdirection. We did a study last year following our after-action reviews of new transition projects that we worked on and in that study, we found that about 85% of new clients come in misinformed about the critical role, responsibilities, and obligations that they have in this transition and beyond when they move over to independence. Now, about three-quarters of those cited a colleague’s transition as the basis for their misunderstanding. Half of them assumed a strategy that was more conservative than permissible. In other words, leaving chips on the table. And the other half were taking on unnecessary risks and unknown risks at the time. Advisors should know that in this transition 100% of the horror stories that you read in AdvisorHub are completely avoidable. Every single one of them are completely avoidable with contemplation and planning. So going back to your original question Bill this is all about the questions, right? This is all about advisors asking themselves the questions they need so that they’re really clear on the destination. And then once they’re really clear on their destination, it’s about finding the knowledge and the gurus, the folks that they want to be able to follow and help shepherd them there, in order to help implement their plan.

BILL COPPEL I couldn’t agree more and particularly in light of the fact, Brian, that you brought up earlier. This notion, that I’m going to leave and reproduce exactly what I’ve got today. And that’s probably not a very good strategy. So taking that time, as you said, to ask those questions is critical. So John based on your experience, what are the questions you think advisors should be asking themselves in order to really find those innovative ways to redefine what advice means in the 21st century?

JOHN PELUSO Yeah. I think the main question that we should be asking is, how do we strike the right balance between technology and human connection? There’s never going to be a one-size-fits-all answer. The answer’s going to depend upon the client and what he or she finds valuable. As you can imagine some are going to lean more toward the human connection but many will lean toward the technology so we can’t ignore it. And advisors should note that a client’s preference will not be static. It may start off one way and shift over time, influenced by things like changes in the client’s lifestyle, how technology evolves, or the next shock that comes and hits us the way that the coronavirus did. So maybe I’ll kind of leave you with this last thought that the most important thing to remember is that the environment is fluid and will continue to be so. So we need to be prepared to be nimble in our approach and building trusted professional relationships can help the advisor along the way.

BILL COPPEL Well, John, Brian I can’t thank you both enough for your time today. This has been an excellent tutorial on looking at how to build a business that’s sustainable, particularly as it relates to our ability to deliver 21st century advice to clients. So to both of you, I thank you on behalf of all of us here at The Next Frontier and our listeners.

BRIAN HAMBURGER Thanks so much for having us.

JOHN PELUSO Yeah. My pleasure, Bill. Thank you.

BILL COPPEL For listeners interested in learning more about Brian and John’s thinking you can find links to their information in this episode’s show description. We hope you enjoyed our conversation today. Please take a moment to subscribe to our podcast. And if you like what you’ve heard, please tell others about it. It helps people find us and ensures you never miss an episode. Our commitment is continue to share industry trends, insights, and timely information with the aim of helping you build a better future for your clients and your business. [music] Thanks for listening and until next time, be well.

Outro If you want to join the conversation or connect with us, please visit us at www.firstclearing.com. This content is provided for general informational purposes only. The views expressed by non-affiliated guest speakers are their own and do not necessarily reflect the opinion of First Clearing or its affiliates. First Clearing and its affiliates do not endorse any guest speakers or their companies and therefore give no assurances as to the quality of their products and services. This channel is not monitored by First Clearing. First Clearing is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. Copyright 2020. Wells Fargo Clearing Services, LLC. All rights reserved. First Clearing provides correspondent services to broker-dealers and does not provide services to the general public.

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About The Guest
 

Brian Hamburger is President and CEO of MarketCounsel, a business and regulatory compliance consulting firm serving some of the country’s top entrepreneurial investment advisors. He’s also Chief Counsel of the Hamburger Law Firm, a MarketCounsel affiliate, that brings a unique blend of business acumen and legal counsel to advisors, fintech firms, broker-dealers, funds, and their corresponding service providers as they navigate the complex issues faced by growing companies in a highly regulated space.

John Peluso is President of First Clearing, a business unit of Wells Fargo Clearing Services serving broker-dealers and RIA firms. A 25-year veteran with Wells Fargo Advisors and its predecessor firms, John was instrumental in launching Profit Formula, which was the firm’s first foray into independence. He then went on to lead Wells Fargo Advisors’ Financial Network, the firm’s independent representative channel, into becoming one of the most successful independent businesses in the country.

Ways To Contact Brian and John

Block Quotes

Technology changes everything except the one thing that's most important, which is the trust and confidence that clients have in their advisors.

Brian Hamburger, MarketCounsel President & CEO

Block Quotes

Clients expect and want advice to go beyond investments to cover everything about their financial lives.

John Peluso, First Clearing President

This content is provided for general informational purposes only. The views expressed by non-affiliated guest speakers are their own and do not necessarily reflect the opinion of First Clearing or its affiliates. First Clearing and its affiliates do not endorse any guest speakers or their companies and therefore give no assurances as to the quality of their products and services. This channel is not monitored by First Clearing. First Clearing is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company. Copyright 2020. Wells Fargo Clearing Services, LLC. All rights reserved. First Clearing provides correspondent services to broker-dealers and does not provide services to the general public.

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