The Value of Independent Consulting Advice

In the advisory business, conflicts can arise from financial institutions getting into business consulting. It’s worth asking questions about these relationships and how these consultants are compensated.


When I ran into another advisory business consultant I’ve known for years,  he said he’s not working directly with advisors anymore. Instead, he’s working with institutions that work with advisors.

The reason? “Advisory firm owners won’t pay for consulting,” he said. “You can’t beat the institutions, so you have to join them.”

While this isn’t my experience, I frequently have heard this complaint from other consultants. And I have to admit that I find it a disturbing trend in the industry. Here’s why.

Independent advisors are well aware that retail investors face many conflicts of interest in the financial services industry. Avoiding or mitigating these conflicts for their clients is the foundation upon which the independent advisory industry is built.

Advisors often overlook the conflicts they face in the industry, that is, in their relationships with affiliated institutions.

I’m not saying that these companies and their leaders are bad folks — they certainly aren’t. But they are “businesses.” And as businesses, they have their own agendas for generating revenues and profits for their shareholders.

Most independent advisors do a good job of helping their clients navigate these conflicts. However, they don’t always do such a good job of it on their own behalf.

This brings me to the issue of business consultants working “with” these institutions to “help” affiliated independent advisory firms. Just as institutions often have conflicts with investors’ interests — typically over product costs and loads — they also have conflicts with their affiliated advisors.

These conflicts can be harder to spot. One issue is institutions that help advisory firms to “grow.”

Obviously, the bigger the advisory firm, the more business for the institution. Consequently, some institutions go to great lengths to reward their “big producers” and other advisors who recommend preferred products and services.

But what about owner advisors who don’t want to run big firms? That is,  those who like owning their own business but also want to continue working with clients.

And what about those who have prudently planned for their retirement and don’t need to sell their business to another firm at the same institution, at a valuation the institution pays behind the scenes?

The Right Agenda

These issues bring us back to business consultants working “through” institutions. If these institutions have agendas that can and do sometimes conflict with advisors and their clients, who is the “affiliated” consultant actually working for?

Remember a decade or so ago, a large accounting firm got into trouble from the conflicts that arose when it started offering business consulting? Think Arthur Andersen and Enron. In the end, the two businesses units were rightfully separated by law.

The same thing is happening in the advisory industry with conflicts arising from financial institutions getting into business consulting.

A consultant’s sole job is to help the owner(s) to create the business he/she/they want to have — without outside influences. This includes advice about which institutions to work with and how to structure those relationships in their best interests, and those of their clients.

Consequently, owner advisors should look for the same independence in their consultants that they offer their own clients.

If you are going to work with an institutionally affiliated consultant, be sure you understand their conflicts. It does affect the advice you get.

Is the advice for you or for them? My hope for all advisory firm owners is that you are getting advice for yourself, not them.