What’s Wrong with the Financial Advice Industry

The following article was an op-ed piece originally published in InvestmentNews.

The political system in our country is broken.               AdobeStock_68670670.jpeg

Sadly, the financial advice industry is following suit.

After a tumultuous, contentious election cycle, the United States is more divided than ever. This division is happening at a time where our country could arguably be at one of its most significant crossroads in its history. The decisions (or indecision) facing our leaders will no doubt change the future of our country. Health care. Foreign relations. Taxes. Social programs. The list goes on. And the financial advice industry is along for the ride.

How One Word is Fueling the Fire
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DOL Fiduciary Rule – Upheld for FIAs

Here’s the Skinny,

The 10th District Court of Appeals just upheld the DOL Fiduciary Rule. It was “argued that the DOL rule treated fixed indexed annuities arbitrarily by forcing the products under the best-interest contract exemption, a provision of the regulation that allows brokers to earn variable compensation as long as they sign a legally binding contract to act in the best interests of their clients.”

Currently, Fixed indexed annuities “operate under the same exemption of federal retirement law as fixed annuities. But the DOL put them under the so-called BICE due to their complexity and the potential conflicts of interest associated with their sales.” 

It was also argued that the “DOL violated rule-making procedures and didn’t do a proper economic impact analysis in promulgating the fiduciary rule.”

“The 10th Circuit judges held that DOL followed appropriate administrative procedure, was fair in its treatment of fixed indexed annuities and that it conducted an appropriate economic analysis.”[1]

Oddly, it feels as though the DOL Fiduciary Rule is heating up again given all the recent press and State activities.  If you are not properly adhering to the regulatory constraints of the DOL Fiduciary Rule’s “extended delay” (through July 1, 2019), you are placing yourself in significant jeopardy.

For more information click & refer to these previous Advisor Skinny posts…

That’s the Skinny,

What do your clients say about you when you aren’t listening?

Interesting question, right?  Imagine if I randomly sampled twenty of your clients and put them in a room together with one goal, to talk about you!  You couldn’t be there with them – rather, you would be viewing these conversations behind a pane of glass.  How would that make you feel?  I’ve asked financial advisors this question before and heard all of the responses you can imagine: anxious, eager, confident, excited, etc…  What is your answer?

Believe it or not, your best clients aren’t working with you because of the funds they are invested in, the amount their money has grown, or the products they own. They are your clients because they like and trust you.  They like and trust you as an advisor AND a person.  They appreciate the detailed care you have given them in assembling their financial affairs, but they also appreciate that you have shown that you genuinely care about them.  They are happy that you have gotten to know them and their family.  They are thrilled to be partnered with you, and most of your best clients view YOU as the Chief Financial Officer of their family affairs.  Sounds great right?

Now if those feelings and emotions describe your best clients, say the top 20%, what do the rest of them think, let alone say about you?  What are they going to say about you to others?  In this business, we are challenged every day with going above and beyond the financial plans we assemble, to create a client “experience.”  What are you doing to create that first class client experience in your day-to-day interactions with your trusted clients?

Do they receive unexpected and delightful gifts from you?  Are their names on a screen welcoming them to your office?  Do they get preferred parking?  Do you remember where they are vacationing next and have a bottle of wine sent to the room?  Do you work alongside them at their favorite charities?  Whatever it is that you do, this is a good time to audit that “experience.”  Now don’t get me wrong, you cannot provide the same level of service or experience to all clients… but take a look at that “top 20%” and “next 30%” (top 50% total) of revenue generating clients.  Work with your team to break down what it’s like to walk in the shoes of a client for a year.  Write down every communication, e-mail, text, phone call, meeting, event, etc.  Find out where the gaps are and identify if your best clients are getting all they should be from your relationship.  I promise you they are talking about it either way!

DOL Fiduciary Rule Enforcement: How Massachusetts May Have Provided the Spark for a Massive Fire

On Thursday, February 15th, the state of Massachusetts charged Scottrade with dishonest and unethical conduct and a failure to supervise. This is believed to be the first known enforcement action under the Department of Labor’s fiduciary rule.

Where this will end up, nobody knows, but it could be the spark that triggers a fire within the financial industry. According to the regulator’s complaint, Scottrade violated impartial conduct standards by conducting some sort of sales contest with incentives for their employees to bring in new assets.

Let’s talk about the reality of this: anybody who has been in the industry for any length knows this happens all the time. It has been a part of the wirehouse and insurance sales culture for decades. The problem is this: far too many financial professionals (and the firms they associate with) are under the impression that the Fiduciary Rule (or Conflict of Interest rule) isn’t yet in effect.

As somebody who is actively involved the everyday communications with our own affiliated advisors, as well as the daily efforts to attract new professionals to our firm, I can tell you that there is a great amount of confusion surrounding this rule. In many cases, it isn’t confusion; it is flat out ignorance.

This is what advisors need to know: this rule is in effect. Today. Now. The “delay” that was triggered as a result of the Trump administration only impacted the second phase of the rule. Here’s where it gets a little fuzzy – it was assumed (due to statements coming from Washington, D.C.) that there wouldn’t be enforcement action taking place. The state of Massachusetts has proven that assumption to be faulty. And it won’t surprise me one bit if other states follow suit.

What does this mean to you as a financial professional? Much of that depends on the firms with whom you affiliate, the licensure you maintain, and the recommendations you make. Don’t be mistaken, regardless of your answer to the three questions items listed above, the rule still applies to you. The risk/exposure may be different depending upon your response to those items.

It really comes down to operating in an environment where impartial conduct standards are established and ensuring that those standards are adhered to by the institution and the representatives of that institution. For example, if you are affiliated with a broker-dealer or corporate RIA, has there been a process and standard established to review recommendations for best interests, as well as an honest effort to reduce or eliminate major conflicts of interest? If you affiliate with an insurance brokerage entity (FMO/IMO/MGA), do they understand the importance of adhering to this standard? Unfortunately, many are still running sales contests, sales incentives, and offering production-based compensation. Knowingly or not, many of these activities are a direct violation of the portion of the rule that is in effect and they are putting the professionals with whom they work in the cross-hairs of a potentially devastating regulatory mess.

This isn’t just an opinion. It’s a substantiated fact as evidenced by the state of Massachusetts. You may love the rule. You may hate the rule. You may be like me and think there should be a logical compromise to this regulation that could accomplish the goals of putting the interests of clients first without creating such a confusing and complex overhaul to the way business is done within all of the different entities that operate in the financial industry. None of that matters though. Our feelings about the rule today don’t change the fact that we all need to operate in a new environment. Sadly, some professionals aren’t quite there yet. And what’s even worse is that many financial institutions (broker-dealers, RIAs, FMOs, etc.) aren’t there yet either. And ignorance won’t be much of a defense if a regulator knocks on the door.

In the meantime, this Scottrade charge will be an interesting story to keep an eye on. You may not be aware, but TD Ameritrade is in the final stages of its acquisition of Scottrade. I’m sure this is the last thing they wanted to deal with as this thing gets buttoned up. If it turns out that the Massachusetts regulators have a leg to stand on when it comes to enforcement actions, you can bet that it may pave the way for other states to follow suit.

For more information and details on DOL Requirements, you can refer to our DOL Executive Summary and DOL Extension Fact Sheet.

For those of you already affiliated with USA Financial, you can find this information on the dashboard.



All the best,

Mark Mersman

DOL Fiduciary Rule – Violation Charges – Proof the DOL Rule is “Live”

Here’s the Skinny,

As recently stated in the news, “Massachusetts charged Scottrade with dishonest and unethical conduct and failure to supervise, in what is the first known enforcement action under the Department of Labor’s revised fiduciary rule.”[1]

Essentially this was the result of their running two sales contests between June and September 2017.[2]

“The Massachusetts complaint asserts that the Scottrade sales contests encouraged their brokers to put their own interests — winning $285,000 in cash prizes for attaining new assets — ahead of their clients’ interests in building their nest eggs. The complaint seeks an order forcing Scottrade to cease and desist, as well as censuring the firm, requiring it to disgorge ill-gotten profits and imposing a fine.”[3]

DOL officials had previously stated they would not pursue claims against “fiduciaries working diligently and in good faith to comply.”[4]

One would assume, among other allegations, that Massachusetts does not believe that Scottrade was “working diligently and in good faith to comply.”

Massachusetts Secretary of the Commonwealth, William Galvin, further stated, “If the Department of Labor will not enforce its own laws and rules, then the states must do what they can to protect retirees from firms who believe they can play with peoples’ life savings by conducting sophomoric (sales) contests.”[5]

Other States are expected to follow the Massachusetts lead.[6]

Many believe that any (and all) sales contests or sales incentives create a conflict of interest and negate a firm’s ability to comply with the best-interest standard.  The Director of Investor Protection and the Consumer Federation of America said the case “perfectly illustrates the kind of practices that go on behind the scenes at firms that claim to be complying with a best-interest standard.”[7]

No doubt this is a shock to many advisors and institutions, as I’m sure Scottrade was not alone in running sales contests in 2017-18.  Unfortunately, many professionals have been under the false belief that the DOL Fiduciary Rule was delayed in its entirety, rather than only partially, as is the case.

For more information click & refer to these previous Advisor Skinny posts…

That’s the Skinny,

    1. February 15, 2018, Financial Planning, “Scottrade charged with fiduciary violations in rebuke to Trump administration.”
    2. February 15, 2018, Investment News, “Galvin charges Scottrade with DOL fiduciary rule violations.”
    3. February 15, 2018, Investment News, “Galvin charges Scottrade with DOL fiduciary rule violations.”
    4. February 15, 2018, Financial Planning, “Scottrade charged with fiduciary violations in rebuke to Trump administration.”
    5. February 15, 2018, Financial Planning, “Scottrade charged with fiduciary violations in rebuke to Trump administration.”
    6. February 21, 2018, Investment News, “Maryland jumps into fiduciary fray with legislation requiring brokers to act in best interests of clients.”
    7. February 15, 2018, Investment News, “Galvin charges Scottrade with DOL fiduciary rule violations.”

Everyone on Staff is in Sales (whether they realize it or not)

Here’s the Skinny,

I’ve been saying for years, “anything you ever do to earn income requires selling.”

There are obvious direct sales roles, but even the “best” of those have been re-positioned as “consultative selling” by today’s standards.  Financial advisors may now be the best example of the consultative (and fiduciary) approach to building business (aka, selling), with attorneys, accountants and consultants in that same category.

Beyond that, no matter what the role someone plays on staff, sales skills are “still” required – even if you don’t think of them that way.  Imagine a receptionist (the voice of your company), or customer service rep (CSR) dealing with both happy and disgruntled customers.  Every situation you can imagine requires some sales skills:

  1. Helping a customer make a decision or choice of any kind.
  2. Handling a difficult conversation and/or delivering bad news.
  3. Getting along with co-workers.
  4. Solving problems and creating solutions of any kind.
  5. Project management and/or new initiatives.
  6. Thinking creatively.
  7. Interviewing for a job.

Simply put, revenue dries up and the world stops spinning without sales.  My dad used to always say to me, “nothing happens until someone sells something.”  But the trick is, people don’t actually want to be “sold.” However, they love to “buy” and they very much appreciate sincere assistance and trusted guidance in every situation along the way.

Quote - Jay Abraham

My point for sharing this today is simply that I read the blog re-posted below from Seth Godin (best-selling business author) and felt it was one of the better ones I’ve seen that describes the subtleties and broad scope for all that includes sales…

Enjoy & and may I suggest, contemplate:

“I’m not selling anything” (from Seth Godin)

Of course you are. You’re selling connection or forward motion. You’re selling a new way of thinking, a better place to work, a chance to make a difference. Or perhaps you’re selling possibility, generosity or sheer hard work.

It might be that the selling you’re doing costs time and effort, not money, but if you’re trying to make change happen, then you’re selling something.

If you’re not trying to make things better, why are you here?

So sure, you’re selling something.

Perhaps it would be more accurate to say, “I’m not selling something too aggressively, invading your space, stealing your attention and pushing you to do something that doesn’t match your goals.”

That’s probably true. At least I hope it is.

(But if you are any good at all, you are always selling something, especially through infectious enthusiasm for what you do.)

That’s the Skinny,

Creating the Most Value in Your Practice

Here’s the Skinny…

The first quarter of any given year is probably the time that most financial advisors visit strategic planning topics  – such as , “How do I get the most value out of my business and/or create the most value in my business?”

Historically, I’ve consulted many advisors regarding the flip-flopped order for the “Top 4 Targets” regarding positioning your practice for clients vs. positioning your practice for market valuation.

Interestingly, I believe the Top 4 Targets are identical in both scenarios (or from both viewpoints – customer vs. buyer), however the order is changed.  


The reality is that systems, sustainability, and profits can be hard to assess separately as they can be so intertwined in their functionality.  The main point is that clients are specifically looking for your expertise, while potential buyers know that you will be exiting the business (at some point after they buy it from you) so they are much more concerned with the repeat-ability and duplication of your systems, sustainability and profits.

For a 5-minute deep-dive discussion on how to structure your practice for success, watch Positioning for Clients vs. Positioning for Market Valuation

One of the strongest contributors to systems, sustainability and profits is the overall percentage of recurring revenue from AUM that you receive within your practice (in comparison to non-recurring revenue from commissions).  In fact, the Succession Resource Group has published a 15-page report titled, “Your Guide to Increase the Value of Your Business”.  Specifically, when it comes to revenue they state…

“The recurring revenue currently receiving the largest premiums (from business buyers) are 3rd-party managed assets due to their recurring nature and ability to scale…” 

They go on to publish a chart that illustrates the Industry Average Valuation for Transactional Revenue (i.e., commissions) is a factor 1.0 X Revenue.  Whereas, the Industry Average Valuation for Recurring Revenue (i.e., AUM fee revenue) is a factor of 2.60 X Revenue.

Source:  Succession Resource Group

Obviously, that represents a 160% “premium or advantage” for AUM recurring revenue over commission non-recurring revenue.  And they also argue that 3rd-party AUM is valued higher than other form of AUM.


Well, think about it as if you are a buyer and then it makes perfect sense…

If you are buying a practice chock-full of 3rd-Party AUM, you can hit the ground running, not miss a beat, and have potentially endless scalability.  You can continue with the systems that are already in place to gather assets with no worries about having to “climb inside the brain” of a self-managing advisor.

On the other hand, if the selling advisor is self-managing the money, how exactly is the buyer to duplicate that thought process and execution once the seller leaves?  And furthermore, how are they to gain scalability whereas the more assets they gather, the more workload, complexity and liability they create for themselves as the money management component escalates, and by default puts strain on the ability to gather new assets?

Additionally, the “business risk” associated with those assets skyrockets in a self-managing practice.  Meaning, if the customer is unhappy with the money management performance, they have no choice but to leave the practice.  Whereas, an advisor “managing the relationships” rather than “managing the money,” can easily pivot to another money manager that more closely aligns with the investor’s needs or desires.

Simply put, buyers are not looking to purchase a job…  They are looking to purchase a business!

Utilization of 3rd -party money managers enhances your practice in ways that commission and self-managed models cannot.

That’s the Skinny,

Moonshots in Business: Your Tool for 10X Growth!

Here’s the Skinny,

Business adopted the “moonshot concept” from President John F. Kennedy, after the speech he delivered before a joint session of Congress on May 25, 1961, where he stated, “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.”[1]

On July 20, 1969, Neil Armstrong and Buzz Aldrin became the first men to walk on the moon.[2]

Thus, the “moonshot” was born.

Some have incorrectly categorized business oriented moonshots as being outlandish ideas that have little or no founding in reality, but this is not the case. President Kennedy didn’t make this challenge on a whim.  The idea was researched, feasibility assessments were made, and then an educated challenge was proposed.  There was no guarantee of success, but that does not mean that the idea was something he snatched from an old episode of Flash Gordon.  (Too young to recognize that reference?  Google it and you’ll understand.)

What many forget is that earlier in that very same speech, President Kennedy stated, “With the advice of the Vice President, who is Chairman of the National Space Council, we have examined where we are strong and where we are not, where we may succeed and where we may not. Now it is time to take longer strides – time for a great new American enterprise – time for this nation to take a clearly leading role in space achievement, which in many ways may hold the key to our future on earth.”[3]

What defines a moonshot in business?

While there is no official formal business description, I define a moonshot as…

  • Undertaking an initiative so unique that it could/would change the trajectory of your business;
  • Attacking problems/challenges so magnificent in size and scope that it both scares and excites you;
  • Requiring radical thinking to fuel giant leaps forward (10x growth vs. 10% growth).

The Harvard Business Review describes a good moonshot as having three key ingredients:[4]

  1. It inspires (it’s not a routine goal like trying to increase sales by 13%).
  2. It is credible (as I mention above, it is not ridiculous, but is founded in reality).
  3. It is imaginative (it’s not the next logical step, but is a meaningful leap).

I contend that most great businesses are riddled with moonshots even if they have gone unrecognized by outsiders.

In fact, I think that in certain world-class companies, moonshots become commonplace (or even expected) as they are embedded into the normal culture of the company.  In our case (USA Financial), I would describe our moonshots as being key “turning points” or “giant leaps forward” that pinpoint our past and shape our future.  Essentially, they become the major milestones in our historical corporate timeline.  Here’s a look back over our 30-year history as example:

  • 1988 Distribution – We launched the firm as an Independent Insurance & Annuity Distributor before any such niche existed.
  • 1992 Practice Management – First developed entrepreneurial training and educational systems to advance advisors’ practices including industry qualified continued education credits.
  • 1995 OSJ – Upon recognizing 96 of our top 100 relationships were with securities reps, we became the largest Office of Supervisory Jurisdiction with two consecutive broker dealers inside of 36 months.
  • 1998 Broker Dealer – We executed our 5 year “OSJ to BD strategic growth conversion plan” two years ahead of schedule.
  • 2001 Fill the Room – Pioneered a marketing service model to fill client events nationally on behalf of local advisors, growing into numerous turnkey “Plug-n-Run” multi-media offerings.
  • 2001 Registered Investment Advisor (RIA) – Predicting the trend toward assets under management, we structured a corporate RIA in support of advisors converting their practice to this “new” model.
  • 2002 UIT – Began investment product research & development applying risk management models to the structural chassis of Unit Investment Trusts (UIT) as we designed product for two different administrators.
  • 2007 Money Management – Our investment product “development” led to our becoming an investment product “manufacturer” via our patented formulaic trending approach to risk & money management.
  • 2008 Tech Company – Crafted our first piece of proprietary financial industry technology, launching and converting our overall cultural mindset to our being “a technology company in the financial services space.”
  • 2012 Syndicated Radio – Subsequent to a previous multi-year local radio show, we restructured and relaunched as a nationally syndicated radio show promoting the consumer value of local independent advisor representation.
  • 2016 TAMP – Designed a highly flexible and benefit-rich turnkey asset management program and platform to streamline and simplify account custody and management for both advisors and investors.

That looks like a lot of success – and it is…  But keep in mind, moonshots, by definition, may include equally explosive failures.  And this is crucial to your understanding moonshots.  A moonshot failure may be even more important than success!  Therefore, it must be okay to fail (as long as proper strategy and effort was applied) as today’s failure often leads to tomorrow’s breakthrough and/or strategic byproduct.  It can truly be said that failure leads to the next-bigger-better moonshot.

For example, two failures directly led to two of our absolutely greatest moonshot successes:

  1. Between 1992 and 2001 we were coaching and mentoring financial advisors all across the country on how to run large, extreme, PR oriented prospecting events.  However, few advisors had expertise or resources to execute the concept from A-Z on their own, so we were being run ragged making appearances all across the continental U.S. in support of advisors nationwide.  We were failing and sinking fast.  Finally, we recognized the need to reboot our entire way of thinking.  After a complete scraping and retooling, we introduced the Fill-the-Room System, which has arguably placed more investor clientele in front of qualified advisors since year 2001 than any other program in the industry (25,000 RSVPs last year alone).
  2. From 2011 through 2013 we undertook a complete corporate re-branding for all of our subsidiaries.  The concept was strategically sound and well-meaning as we tried to separate our investor-oriented branding from our advisor-oriented branding.  Specifically, we were trying to further support our advisors in a rapidly escalating online and social media world.  The whole thing blew up in our face.  We lost traction in the industry.  We created mass confusion.  People literally thought we went out of business.  It was disastrous.  We pulled the plug, stole a page form the historic “New Coke vs. Classic Coke debacle” and did a 180 degree re-branding back to a singular and cohesive USA Financial brand across all subsidiaries while making fun of ourselves at every chance along the way.  We even created a comical video positioning ourselves as the butt of the joke.  It spread like wildfire, worked brilliantly, helped set the stage for our syndicated radio show – and laid the groundwork for our current marketplace positioning that has proven crucial for our TAMP launch in 2016.

Every time I speak with entrepreneurs about failed moonshots, it seems they always point to the power of what was learned, along with phoenix-like stories of how even greater success has risen from the ashes within subsequent moonshots.

Moonshots may be one of your most powerful tools in business.  Who’d have known?

That’s the Skinny,

  1. May 24, 2004, NASA.gov under NASA History, “Excerpt from the ‘Special Message to Congress on Urgent National Needs'”
  2. NASA.gov
  3. May 24, 2004, NASA.gov under NASA History, “Excerpt from the ‘Special Message to Congress on Urgent National Needs'”
  4. May 14, 2013, Harvard Business Review, “What a Good Moonshot is Really For”