I'm not a great fan of opera, despite people often mistaking my last name as that of history's most famous tenor, Enrico Caruso. On the other hand, I do like musicals, mostly because of the enjoyable time I had as a high school student playing violin in the pits.
Ironically, that experience provided (in a very strained way) my only direct experience with opera. During my junior year, several of us bow-slinging types were asked to help add our melodious strains to the string-less orchestra pit of a neighboring school district.
The musical was "My Fair Lady." The role of Eliza Doolittle was played by an accomplished teenage singer by the name of Renée Fleming. You might recognize the name – if not now than in less than two weeks when she sings the national anthem at the Super Bowl. She's perhaps America's most well-known soprano, and the closest I've ever got to opera.
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But "My Fair Lady" is another story. It's one of my favorite musicals. There are a lot of great songs (and a lot of difficult phrases for the first violin part). As I was re-reading the comments of fiduciary supporter Kathleen McBride, (see, "Exclusive Interview with Investor Advocate Kathleen McBride: SIFMA Seeks to Protect Business Model Where Client Serves Broker, Not the Fiduciary Model Where the Broker Protects the Client," FiduciaryNews.com, January 22, 2014), I couldn't help think of the song "Why Can't a Woman Be More Like a Man?"
Except, the thought I had was "Why can't a broker be more like a broker?" It seems, when you get down to it, the brokerage industry needs to ask itself: "Do I want to be a broker? Or do I want to be an Investment Adviser?" For whatever reason, the SEC years ago allowed brokers to take on this split personality of dual registration. I think this has confused not only investors, but the brokerage industry, too.
Think about it. A dual-registrant wakes up in the morning, eats breakfast, slips on his jacket, grabs the car keys (or subway token) and – darn it! – now which hat should they put on? Come to think of it, I could have ditched the reference to Rex Harrison's masterpiece and used the song "Am I a Muppet or a Man" to make the same point.
The fact is, according to a series of surveys sponsored by fi360 and ThinkAdvisor, McBride says the trend, contrary to SIFMA's plaintive wails, is for rank-and-file brokers to prefer to act as advisers, not as brokers.
So what's stopping them?
Nothing. Except maybe a little entrepreneurial zest (which, admittedly, is not a little thing for most people). The fact is, at least theoretically, brokers can decide for themselves if they want to act more like a broker or more like an adviser. They don't have to stay in this strange Schrödinger-like dual state of reality if they don't want to. They are free to choose whatever business model they prefer – the brokerage business model or the adviser business model. It's my understanding one can make money in either model.
Or maybe not.
And that, literally, is the bottom-line. We've long passed into the era of discount brokerage. Perhaps the traditional brokerage model no longer works – unless it can offer investment adviser services without the concomitant regulatory overhead (that would be the fiduciary standard). In effect, the brokerage industry appears to have changed the script. Perhaps it's the only way it can continue to make money.
If that's true, there's no reasonable way they can surrender without a fight. If it's really true, the industry will fight to its death to get its way.
Odd thing about My Fair Lady. It was based on George Bernard Shaw's play Pygmalion. Shaw's original script didn't have the happy ending we see in My Fair Lady.
But, before you go blaming Lerner and Loewe for "artistic license," know this: During its 1914 run and despite its success, the theatre's owner, sensing a certain dissatisfaction with the ending, changed it. The new, happy ending, brought in record crowds and more money. Shaw wasn't pleased and fought all the way through to the 1938 film version of the play. Hollywood went with the happy ending.
Why can't a broker act more like a broker?
Because a broker who acts like an adviser can make more money.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
