Bye-bye, Dinosaurs

Okay, I am biased on this subject, but here is an article about the future of the financial services business that I cannot help but share. The author, Bob Veres, has been at the forefront of the movement to provide fiduciary care for investors. His most recent article in Financial Planning Magazine makes some observations I can't make about my competitors.

It was almost seven years ago that I predicted the demise of the big brokerage organizations, so the shotgun acquisition of Bear Stearns, the bankruptcy filing of Lehman Brothers, the sale of Merrill Lynch and the reformulation of Morgan Stanley and Goldman Sachs as banks simply confirmed a trend that started long before Prudential Securities was sold to Wachovia or Shearson or when Kidder-Peabody and Drexel Burnham Lambert went the way of all flesh.

My reasoning at the time still holds. What was the purpose of these large institutions in our modern financial marketplace? We have independent RIA firms offering increasingly unconflicted financial advice. We have more than enough mutual funds to fill the void left by the wirehouses' high-expense, low-performance asset management divisions. I'm even having trouble seeing why the capital markets need somebody to underwrite the shares of new public companies, at a collusive cost of 7.5% of every dollar raised. Haven't we successfully tested Internet-based IPO auctions, which produce better pricing at a small fraction of the cost?

Bob goes on to lament the loss of some of the things these mega firms provided.

We'll also miss the advertising. The brokerage firms allocated a generous portion of their profits to marketing campaigns that communicated a powerful ideal of what financial planning and financial services should be. With extraordinary creativity, they built consumer demand for that wise counselor who could help you finance your daughter's dream wedding and your once-in-a-lifetime vacation around the world. Who among us is going to dig into his or her pockets to pay to air that message during the next Super Bowl?

I hope you will take the time to read the article in its entirety and share it with your friends.