Independence Day

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Jul 3, 2012 11:42:42 AM

and tagged Market Updates

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On an industry level, and certainly on a personal level, a different article caught my eye in today’s New York Times. On the front page, J.P. Morgan was called out for favoring its own mutual funds in its advisory business. The basic idea is that its brokers and advisors were encouraged to sell proprietary funds over funds from other companies that might have been less expensive or better performing.

One of the key advantages of an independent agent for consumers is the lack of institutional incentives to select one service provider over another. In a past life, I had a mortgage brokerage company, and we dealt with a wide range of lenders and investors. Often, when we talked with prospects, they would ask what we could do that their bank could not. “Maybe nothing,” was our honest answer. “But, when you buy a car, do you look only at one dealer and take what it says as the best model and price?” The answer was usually “no”—and our point was made.

None of this is to knock J. P. Morgan, a great firm that I respect. It is certainly not the only one with these incentives in place—if in fact the allegations are even true. Nevertheless, even if some of a firm’s funds are great, not every firm can be the best at everything. Porsches make lousy boat haulers, and Yukons aren’t so good on the track. To really get the best-in-class in everything, it can certainly help to be able to shop around.

That’s where independent advisors have a serious advantage. At Commonwealth, for example, as a client you don’t have to worry about proprietary products because we don’t have any. None. Everything we do is either selected from the best of the third-party options or is an open strategy that any of our advisors can implement with no fee to the firm. We have an entire research department full of investment and product experts who spend their days looking for the best products—with no bias as to provider. I know, because I set it up that way.

So, given that tomorrow is Independence Day, I think there are a lot of reasons to celebrate independence and to look for it in many areas, including investment advice. You want your advisor to be working for one person only—you.

Happy Independence Day!

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