Barrier to Entry (Part 2)

I 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.