A guidance counselor pointed out to a young Clive Slovin that testing showed an affinity with numbers and suggested that becoming an engineer or actuary might be a fruitful career path for a young man. Slovin, a native of South Africa, says he was always more interested in business than those other suggested fields, so he headed to university to study accounting and become a CPA. His reasoning: The best way to get an overall view of business was to gain a firm command of the numbers fundamental to business performance.
It turned out to be a prescient decision for such a young mind, as it resulted in a career as an auditor with Deloitte, the giant accounting and consulting firm, and eventually opened the door to his desire to emigrate to the United States, when Deloitte transferred him to its Atlanta office. That was more than 40 years ago. His 10-year career with Deloitte ended when he discovered yet another way to apply his aptitude with numbers.
“Over time I realized I enjoyed building a business, and I also enjoyed helping people, finding ways for people to get financial independence,” Slovin recalls. “There were certain aspects of the CPA world that I didn’t like. I spent a lot of my time on the audit side and it was looking back at what people had done, instead of helping make things happen. So, when I came across the independent broker/dealer, it was an eye opener to me and a major development in my professional experience. I had no idea the independent wealth management business even existed, and I just couldn’t believe it when I came across it because it dealt with so many aspects of what I found personally motivating.”
That was not the last of Slovin’s watershed epiphanies. In time, he and his peers were soured by the private wealth industry’s periodic spates of consolidation, the proponents of which inevitably promised to maintain an organization’s culture, only to be upended when, after a few years, the management team that promised to be vanguards of culture had either ceased being decision makers, or moved on to other enterprises.
“The whole culture changes,” Slovin observes, “and very often it creates a lot of disgruntled financial advisers.”
A few cycles of that scenario convinced him and some partners to start their own broker/dealer and RIA named The Strategic Financial Advisors (which has since evolved into SFA Partners) in November 2003. Its first address was the basement of Slovin’s house.
“What I promised the group is they would not have to leave the broker/dealer again,” he remarks. “That is one of the reasons I came to this country in the first place — to be able to do what in fact what we have done at SFA.”
It took almost a year to get the new organization off the ground, and until a couple of years ago SFA’s growth was entirely by referral. For starters, advisers and teams of advisers who knew Slovin and his partners from their past affiliations with product sponsors referred advisers to SFA. Then advisers who had joined the SFA platform referred their peers and former colleagues. More than 90 percent of the SFA team, as it currently stands, were referred.
“They have come from a number of firms,” Slovin notes. “A good number of them came from firms that I was affiliated with in the past. Very few people have joined us from the wirehouses. The majority have come from other independent firms.”
No formal recruiting program existed until 18 months ago when SFA hired a recruiter whose sole function is bringing new people to the SFA platform. That involves identifying people who fit the organization’s culture, and have their clients significantly invested in alternatives — with alts accounting for 10 percent to 20 percent of overall portfolio assets.
The value proposition for incoming advisers? A broker/dealer platform rich in alternatives and real assets, an environment in which advisers have the resources they need to properly diversify client portfolios, by Slovin’s assessment.
“We have come across a number of advisers whose production has dropped as much as 20 percent as product types have been removed from the menu at their current firms,” he notes. “They find with us they can get their 20 percent back, and even grow it beyond that.”
Slovin explains that fewer advisers have access to alternatives because broker/dealers are dumping them from their platforms, fearful of the tremendous regulatory burden and risk associated with them, opting instead to take the path of less resistance.
“They are taking the easy way out, and as a result the industry is getting commoditized,” he says. “We are in an industry that has become extremely commoditized. That has resulted in reduced product availability. We still do approximately 20 percent of our business in the alternatives space, which is quite unusual in this segment of the industry. If an adviser wants a particular product because he or she feels it would be beneficial for the client, or is something the adviser is more comfortable with, we will certainly put that product into due diligence and, if it passes due diligence, it goes onto our platform. We are a firm that’s prepared to innovate with new kinds of products, and this is very different from a number of other firms. For instance, there are a lot of firms that will not even consider a product if a particular offering hasn’t already sold $100 million of investments.”
As a result, adviser attrition at SFA is “very low,” he says, though specific percentages were not at hand.
Strategic Blueprint is an integrated technology marketplace for advisers that makes available a range of services and products ranging from mutual funds and ETFs to closed-end funds and other investment vehicles provided through TD Ameritrade. Meanwhile, SFA Partners overall supports 150 fee-only and commission-based independent financial advisers with $5.8 billion in advisory and brokerage assets belonging to 30,000 clients.
AN ACT OF CONGRESS
From a regulatory standpoint, Slovin considers the industry behind the times, pointing out the industry legal structures were formed about 80 years ago. That has left the industry struggling to harmonize regulations and to deal with fiduciary standards. Regulators invariably focus on how advisers are compensated — whether by commission or fees — and that is a waste of time, Slovin reasons. Advisers can be ethical or unethical whether they earn fees or commissions.
“How they get compensated is totally irrelevant to acting in the best interest of their clients,” he says. “How they get compensated should relate much more to the kind of service and products they provide, rather than what regulated entity they are operating in.”
Slovin is betting distinctions between broker/dealers and RIAs will disappear over time, as they begin operating under one set of standards and merge. Naturally, that will require a new set of regulatory standards.
“It is literally going to require an act of Congress for that to happen, and we know that Congress only acts when there is a crisis,” he says. “Eventually there will be a crisis, whether caused by dishonesty or economic factors.”
Reasonable standards and regulatory frameworks have long been established and effective for many other professions — such as accounting, law and medicine — and the same can be done for financial advisers, Slovin contends. What’s more, financial advisers are more important today than 10 or 20 years ago, and will be even more important going forward, as products become more complex and new ideas are brought to market, he says.
While SFA started as a broker/dealer and RIA in 2003, the company has evolved as times have changed. Though still a broker/dealer and RIA, it has also added an insurance agency and started a second RIA named Strategic Blueprint, specifically for those advisers who would otherwise want to start their own registered independent advisory firm, or want to get away from FINRA oversight by giving up their securities registrations.
Strategic Blueprint and its companion broker/dealer operate under the umbrella organization called SFA Partners, which has a specialty in the illiquid alternative space that amounts to 20 percent of its business. It is the organization’s inventory of alternatives and its advisers commitment to using them in client portfolios that is the differentiating factor between SFA Partners and its peers, according to Slovin.
“It is a matter of keeping up with what is going on in the industry and, in some respects, staying a little ahead of it,” he says. “We have formed a managing broker/dealer that hopefully can focus on the particular strength we have in due diligence. In that way, we hope to get some additional good product out into the marketplace.”
Mike Consol (firstname.lastname@example.org) is editor of Real Assets Adviser. Follow him on Twitter
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