Barrier to Entry (Part 2)
Posted by Mark on March 22, 2018 at 06:43 | Last modified: November 27, 2017 07:03I want to continue the discussion about barrier to entry into the AM industry by presenting a contrary viewpoint.
In February 2015, James Osborne of Bason Asset Management posted the following in a blog:
> For roughly a decade a huge shift has been moving the financial services
> industry away from commissioned brokers associated with a wirehouse or
> indie broker/dealer and to Registered Investment Advisors who work for
> a fee. Without a doubt, this is a good thing. The conflict that comes
> with commissioned advice is unnecessary, and investors deserve better…
> There is a downside as this shift takes place when it comes to training
> and licensing. The requirements to be a broker… pass the Series 7 exam.
> Let’s be clear: the Series 7 isn’t exactly like passing the Bar or
> graduating from medical school. It’s more like cramming for a few days
> or weeks before a freshman year final exam. To pass the Series 7 you
Funny!
> at least have to be able to define stocks, bonds, mutual funds and
> options. It’s not much, but it’s a start…
This describes my 2014 experience in preparing for and passing the Series 65.
> To be… an Investment Advisor Representative… the only requirement…
> is to pass… the Series 65. The Series 65 exam is roughly half as long
> as the Series 7 exam, and… much less technically challenging.
>
> So we find ourselves in a world where the only barrier to holding
> oneself out as a competent fiduciary advisor is a few hundred dollars
> in state registration fees and a 3-hour exam. I can’t imagine anyone
> intentionally designing a system where we are trying to make it easier
> to be a fiduciary advisor than a stock broker, but that is where we are.
>
> If we as Registered Investment Advisors want to be taken seriously as
> professionals, we have to raise the barrier to entry. Potential advisors
> should have a much broader knowledge base before practicing. The CFP
> and the CFA are a great place to start…
How about a Pharm.D.? It’s much more expensive!
> Unfortunately, the CFP board has taken steps to lower the barrier to
> acquiring the CFP marks rather than raising it…
As opposed to general “financial planning,” I want to focus on improving investment performance.
> Whether the solution comes from regulators forcing the administration of
> a much more challenging entry exam or the industry raising the bar for
> advanced designations, something needs to give. If a representative is
> going to hold out as a fiduciary advisor under an RIA, the public should
> be able to be reasonably assured that this person is competent to give
> advice in the client’s best interest. I am not sure that is the case today.
I will try to resolve some of these differences in viewpoint next time.
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