Service, Not Products

From Independent and Direct to Consolidated and Conflicted

When Stephen first entered this business nearly forty years ago, things were different. Clients came to deal in straightforward investments: stocks and bonds. There were no mutual funds or financial products. “Financial planning” as we know it today, was not born yet – this was pure securities trading, or the buying and selling of stocks and bonds.

Brokerage business was about transacting – it didn’t matter to the business what was being bought and sold. Advisors weren’t burdened with sales quotas and could buy and sell whatever the client wanted.

But the industry shifted. Banks and large financial institutions consolidated the old brokerage model, folding insurance, trust, and wealth management under one roof. With that often came a new playbook: build financial products (like mutual funds), push them through in-house advisors, and measure success by sales.

Advice slowly became less about the client’s best interest and more about the firm’s bottom line. It became less about selling a professional service and more about selling a product.

Selling a Service vs. Selling Products

In the industry today, three parties are always at the table: the client, the advisor, and the firm.

In all too common business models (which use what we like to call the “cookie cutter” approach) where advisors sell their own firm’s products, the firm wins first - by collecting fees and pushing scale. The advisor may benefit second, by hitting quotas or earning incentives. And the client? They only “win” if those particular products happen to perform well.

Independent, service-focused advice flips this order of priority. There are still three parties - but now the client comes first. Advisors act as professional service providers, not product sellers. Without the pressure to distribute a firm’s proprietary funds, the advisor can recommend only what’s most suitable and attractive for the client’s unique situation. We believe that this is right.

What Are You Paying For?

There has been progress in the industry towards more fairness to the client - with lower-cost funds, more transparency, and the proliferation of “do-it-yourself” investment options - but progress on an outdated model can only go so far. Conflicts still persist when companies are both product manufacturers and distributors of advice.

Many of the most widely used financial products (e.g., mutual funds) are often designed to track broad markets. For example, a mutual fund that is designed to track the S&P 500 index.

What value does a firm or an advisor add to a client if their models are based on tracking the index? There will be no value added in investment performance; the client will receive the same rate of the return as the market.

The value added has to come from the service, or another piece of the puzzle, like financial planning. Clients should ask themselves, is the value I’m receiving commensurate to what I’m paying?

Media Noise Doesn’t Help

Layer onto this the constant hum of financial media. Outlets like CNBC and Bloomberg often favor bullish headlines - not because they know what will happen, but because their business depends on keeping investors engaged, invested, and watching. It feeds the machine. If investors pull back, fee revenue falls across the industry.

This is why clients so often hear the refrain: “You need to be in it for the long term.” Sometimes that’s sound advice. But often, it’s used to justify holding investments that are already stretched or even poised to contract. Hope and patience are not the same as a disciplined strategy. Hope is not a strategy at all.

Full Circle

After decades in the business, through market booms, crashes, industry consolidation and waves of new products, Stephen often talks about coming “full circle.” Back to a simpler model, one that focuses on the service and not any product, one where the client is taken care of and the bottom line comes second – not the other way around.

In our group, independence means:

• We avoid don’t invest in anything for you that we don’t own personally ourselves.
• We provide advice as a service, not a sales channel.
• We have complete flexibility and independence in choosing with which products to fulfill our service commitments. In the spirit of coming “full circle”, we mainly use direct stocks and bonds and seldom bring financial products into the fold (there are specific use cases where products are the best thing for the client – in which cases we can choose any product from any company).

The Takeaway

Financial services will always have three parties involved. The only question is: who’s needs come first?At independent, service-focused firms, the client does.

This is why we’ve built our practice the way we have, as a professional services practice free from quotas, free from product pushes, and fully aligned with the people we exist to serve in the first place – our clients.

Lee Scully, CFA