"A lot of people know how to pick investments but don't have the emotional discipline to stay on course. They need someone to keep them on track."
Full-service brokers have been saying that for years. But the above quote comes from a person who for 25 years has sat on the opposite side of the fence: Jack White.
White, who started the first discount brokerage on the West Coast in 1973, thinks professional financial advisers, along with computerization, will be the two driving forces for the brokerage industry in the years ahead. Advisers are needed to help most investors sort through the reams of financial data now at their fingertips.
"Advisers represent a solution to the increasingly complex world in which we live," he told Registered Representative while taking a break at a recent conference for advisers sponsored by the firm.
White hasn't completely changed his stripes. His solution to noise overload is fee-only advisers, not full-service brokers. "The big advantage of fee-only advisers is that they're sitting on the same side of the table as customers," White said. "Certainly there are many traditional brokers who are good and competent. But if they are compensated by commissions, it creates an inherent conflict of interest for them."
His firm, San Diego-based Jack White & Co., recently held its third conference targeted to fee-only professionals, attracting nearly 600 advisers from across the country. The event included the usual assortment of fund manager panel discussions along with sessions of the type frequently targeted to full-service brokers.
Speakers included San Diego sales consultant Bill Bachrach, who preached the merits of building trust with clients, and Don Trone of Callan Associates, who delved into the intricacies of wrap accounts.
One of the more intriguing talks was a discussion of high-net-worth clients by Russ Alan Prince of Prince & Associates and Stephen Gresham of the Gresham Co.
Prince, an expert on financial behavior, has identified nine money personalities of wealthy clients. These range from "family stewards" and "independents," both of whom view investing as a means for accomplishing goals, to "phobics" who dislike discussing money and "gamblers" who relish the thrill of taking risks. Advisers need to recognize the money profiles of each client and apply various tactics selectively, Prince and Gresham said.
One key to building client satisfaction that works with nearly everybody involves good, frequent communication. "Clients want you to get to them early and communicate often," said Gresham. "The paradox is they don't make it obvious."
The conference also provided an opportunity for Jack White & Co., which counts 200,000 customers and $11 billion in assets, to showcase the direction it is moving, both in servicing clients and increasing its electronic innovations.
One of those innovations is an electronic "crossing" system for trading small stocks. The firm compiles buy and sell orders for a particular stock, bringing customers together once a day if their orders mesh at a single price. The system is designed to eliminate bid-asked spreads on Nasdaq stocks. It has been up and running for about a year.
"If a stock trades at a quarter-point spread, we eliminate the spread, saving each party 12.5 cents a share," said White. "It's a wonderful way for customers to save money."
He conceded the system has been slow to gain much of a following, hampered by a scarcity of buyers and sellers. "It's a longer-term endeavor," he said.