THE BLOG
02/21/2013 04:54 pm ET Updated Apr 23, 2013

The New Era of Competition on Wall Street

Consumers benefit from the competition between companies. This force drives better products, pricing and service because consumers have unprecedented resources to research and choose what's best for them. Given this access, more and more people care about the service quality and the provider trustworthiness. If you are a "good outfit" in any industry, you will grow faster, win more business and retain your clients and customers through tough times. Yet the financial services industry has lagged with regard to both creating and maintaining a competitive environment to win and retain clients.

The problem lies with the complete disconnect between how firms appeal to potential customers and how those customers are treated once they begin working with an advisor at the firm. Investors are told that they can trust the firm and their advisor and that they are working with a firm that is acting in the interests of their unique financial goals. They are told to trust the firm, because it is committed to innovation in the best interest of clients. Yet, most investors remain woefully uninformed about the stark reality that many large integrated brokerage/banks quietly disenfranchise the investing public by treating them as simply accounts, not people. Investors are largely unaware of the business agendas and profit taking that run completely contradictory to the messages they receive when choosing an advisor.

Financial firms have three key obligations: the safekeeping of clients' assets, the servicing of their accounts and the sale of investment products that are aligned with the investors' goals and objectives. These should remain separate aspects of the firm's business. When a company that is supposed to be safekeeping an investor's assets also profits from the sales of specific investment products, an inherent conflict emerges. And when the advisor responsible for providing service is also expected to make sales for the firm, the idea of objective service is problematic, perhaps impossible, for even the most well intentioned advisor. This model was very lucrative for many firms at the expense of their clients and was allowed to perpetuate simply because there was no competition.

But the era of large, fully integrated financial services firms that are "profits-first, people-second" is finally coming to a close. Competition forces firms to realize that they cannot simply market buzzwords like "trust" and "we care more" and expect to attract and retain clients. People expect choice, they expect competition among service providers for their business, and they expect technology to keep pace with their lives.

The questions people have asked of other companies and industries to ensure that their best interests are placed first are now being asked of the firms and advisors to whom they have entrusted their financial security. And they will use every tool at their disposal to seek out the most responsive, transparent and competitive companies--or they will simply manage their finances themselves.

As Tom Nally, Chief Executive Officer of TD Ameritrade Institutional, recently told Registered Investment Advisors (RIA) at the company's annual conference, 86 percent of younger investors would fire their parents' advisors if given the chance in a life-changing event. That figure should terrify Wall Street firms that have operated comfortably and complacently for years without any real competition. The generation accustomed to choice, technology, and open access is demanding the same from our industry.

Investors deserve the same level of competition that they receive from every other company they do business with. They should question whether their investment advisors' claims of separation of safekeeping, sales and service are, in fact, accurate. If a firm can't answer those questions, then investors should find a firm that can.