Who chooses the investments in your portfolio? You may think it’s your advisor: it says so in the contract. Don’t be so sure. If you believe these are important decisions , we encourage you to look closely at who’s been making them and how.

Do you work with a registered investment advisor (RIA) or a broker? Brokers come in many sizes–and shapes too. But they’re the same in one respect: the small independents, a regionals, and huge firms like Merrill Lynch all see the world through commission-colored glasses. Is your Morgan Stanley “guy” an advisor or broker? Does he work for the bank–or for you? Are you sure you know? Nothing wrong with being a little bit country and a little bit rock ‘n’ roll–but this isn’t music: the “hybrid model” exists to blow smoke in your eyes.

And commissions aren’t the only problem: so is choice!  Asset managers often have to “pay to play” to get in front of your broker and ultimately you, the client. The result: less choice for the broker; less choice for you; conflicts of interest all the way down.

If you’re still working with a broker, we suggest you run, don’t walk. If you’re not sure, ask someone who can give you a straight answer. The fiduciary model–the RIA model–is the only one that puts the client’s interest first. But tread carefully: there are problems on our side of the glass too–they’re just harder to spot.

A fee-only registered investment advisor should have no financial incentive to choose investment A over investment B, but how does that advisor choose from the 12,000 stocks and 13,000 funds, and countless bonds and other financial instruments that are traded daily? There’s hard work and judgment. There are screens. There are filters. Firms have “whitelists,” “best ideas,” model portfolios.  Some firms have guardrails; some have gatekeepers. Their choices may be good, bad, or average, but how much choice does your advisor really have? 

The gatekeepers have their own gatekeepers! Custodians like Fidelity and Schwab own proprietary funds that compete directly with other asset managers. They charge a toll for access to their platforms and don’t let all ships through. This is a clear conflict of interest, but banks like Goldman Sachs are even more aggressive in pushing proprietary products through their advisors and into their clients’ portfolios.

Private investments and other alternative assets require still more gatekeepers. As our clients know, many private investments are less accessible to them than to large institutions: there’s a middle layer and paperwork. The fintech platforms play a vital role in expanding investor access, but their business model also requires them to charge and to choose. This adds another layer of conflict of interest. Competition has kept their part of the ecosystem healthy, but it may be under threat of extinction.

Big business worships at the altar of scale and efficiency, and more choice isn’t part of the sermon.The most obvious way to turbo-charge an advisor’s growth is to create a standardized “product” and deliver it with ruthless efficiency. They don’t need the best managers: they need “good enough.” They don’t need a healthy ecosystem: they need ways to cut corners. Choice is a bug, not a feature. Large “brand name” funds, that hundreds of advisors can buy for their thousands of clients, tick all the boxes.

You may well assume your advisor–as your fiduciary–would advocate for more choice over less. It could be just the opposite.  In a recent closed-door meeting with representatives of the industry’s largest RIAs, the mask slipped. Their decision-makers openly discussed active measures to reduce client choice! What alarms us is that some RIAs are openly discussing killing off one of the healthiest parts of the ecosystem: why not let Fidelity and Schwab choose which ships can pass? It will reduce paperwork. It will cut out the middle man. And it will trade your freedom for their scalability. It will let them serve the same happy meal to as many millions as they can serve. Welcome to average!

Average is a perfectly good choice for many investors–with one condition. An average and low-cost portfolio will materially outperform the average investor. There’s a firm up river from Magnolia’s Philadelphia office (you may have heard of it) that deserves a Nobel Peace Prize for proving this on a massive scale.

What does it take to be better than average? One way is to start with an advisor who understands and embraces the challenge, one who’s able to leverage experience and privileged access, and has the drive it takes to deliver thoughtfully curated opportunities. An advisor who will manage growth without abandoning founding principles. We know some.

They say you get what you pay for, but that’s the best case scenario. We implore you: don’t pay a premium price for average. If you believe alternative markets offer superior returns–ask what your advisor is not allowed to choose, and why. Every advisor is free to choose their own business model and the incentives that come with the package deal. We’ve made our choice.

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