I Escaped Captivity in 2006

This blog is courtesy of Russ Thornton of Wealthcare for Women.


As many of you know, I resigned from a large, well known Wall Street brokerage firm in 2006.

I had a positive experience at this firm and have nothing disparaging to say about them.

However, I do want to touch on an aspect of working for a large brokerage firm.

I was a captive.

Not in the sense that I was hindered from serving my clients or living my life outside of the office, but in the sense that I was a captive “agent” of that firm.

Despite my title of financial advisor at the time, most people considered me a stock broker, or “broker” for short.

However, this isn’t entirely accurate.

Yes, I could access and utilize thousands of investments and investment products while serving my clients, but the thousands of investments and investment products didn’t represent ALL the available investments and investment products.

For instance, I couldn’t recommend a stock unless our firm had an analyst actively researching and following the stock. And thankfully, I got out of the stock recommending business long before 2006.

If I wanted to recommend many no-load mutual funds, including Vanguard, there was a time earlier in my career where these weren’t available at all. Later, many of these became available through a fee-based brokerage or wrap-fee mutual fund accounts.

Let’s look at it from another perspective.

If you own a car or a home, you have to have insurance coverage. Is your insurance coverage sold by a “captive” agent or a broker?

Captive agents can typically only sell insurance policies from the company that employs them, while brokers can shop around among different insurance underwriters and access different policies from different companies.

I always recommend that you utilize the services of a broker when it comes to your insurance coverage whether it’s on your home, your car, your life or your long-term care.

Otherwise, by using a captive agent, you’re limiting your choice, both in terms of coverage and in terms of price.

I think the same concept holds true when you’re dealing with a financial advisor.

Now let me be clear, your financial advisor is a person, and a person can be trustworthy and put your interests first no matter where they work or whether or not they’re “captive.”

However, in the absence of a long-standing, trusted advisor relationship, I think it would be in your best interests to seek advice from an independent financial advisor.

There was a story a few months back covering the decision by Morgan Stanley to no longer offer Vanguard funds to its clients. Make of that what you will, but it highlights how some advisors and their clients are subject to the decisions of the organization despite what may or may not be in the best interests of that organization’s clients.

And if you want to take things a step further, not only do you want to establish a relationship with an independent advisor, but you may also want to be sure you’re working with a financial advisor who is a fiduciary.

But even then, all financial advisors who are fiduciaries are not the same.

Some advisors serve their clients as fiduciaries at all times, while other dually-registered advisors serve either as a fiduciary or not depending on whether they’re working with you on a brokerage account or a managed account.

And ultimately the responsibility falls to you to understand these distinctions among advisors.

Most consumers believe all advisors must put their clients’ interests first all the time. Sadly, this isn’t the case.

Again, a trusted relationship transcends all this terminology, but these are some important considerations especially when you consider the importance and potential impact a financial advisor can have on your life.

I’m happy to have “escaped” captivity back in 2006 when I left the large Wall Street firm. While I had a good experience there and met a lot of great folks, I’m happy to now be both independent and serving my clients as a fiduciary at all times so I can always put my clients’ interests first and have access to the full universe of solutions available.

At a large firm, the clients’ interests are often competing with those of employees and shareholders.

With an independent advisor serving as a fiduciary, there are few, if any, instances where your interests are competing with those of shareholders or employees.

So whether it’s your home or auto insurance or your financial planning, I suggest you consider the benefits of working with an independent financial advisor working as a fiduciary who is only captive to your best interests.



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