Why do so few people call themselves stockbrokers anymore?
Once ubiquitous, the term has fallen out of fashion among those who manage clients’ money. Even brokerage employees who are registered representatives and would previously have been called stockbrokers are calling themselves financial advisors, wealth managers or wealth professionals. Others are playing up their credentials as financial planners.
Among CFPs, 59% are able to sell commissioned products, according to CFP Board figures. Those CFPs are subject to the board’s code of ethics for those who hold the certificate — but they work for brokerages, where they are held to Reg BI’s less-rigorous standard.
“Those CFP professionals are committed to acting as a fiduciary for their clients, at all times, when providing financial advice which includes brokerage services,” says CFP Board CEO Kevin R. Keller.
It’s difficult to pinpoint when exactly “stockbroker” started declining in popularity, but the rise of online brokerages was a major driving factor. As do-it-yourself platforms gained traction over the years, many advisors started to downplay the stock-trading part of their roles to emphasize other services like holistic planning and goals-based analysis.
“Merriam-Webster defines ‘stockbroker’ as someone whose job is to buy and sell shares of stock for other people. But buying and selling stock is now part of the implementation phase after an advisor has completed a financial plan,” Keller says. “As such, more advisors are more accurately identifying as financial advisors to emphasize more the value of their advice and planning rather than just the products they may implement.”
As a broker-dealer, Wells Fargo Advisors employs registered reps who could rightfully call themselves stockbrokers. But few of them do.
“For most of the people in the industry, they don’t think of themselves as a broker of anything,” says Kimberly Ta, head of financial advisor integration at Wells Fargo Advisors. “They look at the relationship they have with their clients as much more holistic than that.”
John Taft, vice chairman of brokerage house Baird, has seen the shift over his four decades working in finance. He’s written books on the role of financial services in society and has worked in investment banking, asset management and wealth management; he holds six securities licenses, according to BrokerCheck.
When Taft started out, stockbrokers were people who helped clients manage their wealth. The relationship was transactional, he recalls: the stockbroker would come up with an idea for an investment, call a client, convince them to do the deal, then execute the trade. For this work, the broker would receive a commission.
The next iteration of wealth management was the investment advisor. Moving beyond commissions, they charged an advisory fee for designing and implementing a client’s asset allocation, based on their risk tolerance and return expectations. And today, wealth managers focus on their clients’ goals and how to achieve them. Crucially, Taft says, wealth managers now often work as part of a team that brings together insurance, lending, trusts and estates, tax planning, and other services.
“Advice around transactions, advice around investment portfolios, advice around wealth management plans: it’s all advice and I’d say the term ‘financial advisor’ is probably a blanket term that would apply appropriately to all those models,” Taft says.
It’s possible still to find professionals calling themselves “stockbrokers,” especially at smaller broker-dealers, where some people still specialize in crafting securities transactions for clients. And the model isn’t completely dead.
Taft cites himself as an example of one client who continues to use a brokerage account and pay commissions on some transactions. Because he inherited some low-basis stock, he would incur significant gains if he sold it all at once, but he doesn’t want to hold the shares if they’re not contributing to his broader goals. So he keeps them in a brokerage account, where his financial advisor can monitor them and sell them — for a commission — when necessary, perhaps to offset losses elsewhere in his portfolio. Similarly, as a decade-long veteran of the municipal bonds business, Taft prefers to assemble his own muni ladders, and is happy to pay commissions to buy and sell the bonds he selects rather than have his financial advisor choose them.
“There is a legitimate role for them and for brokerage accounts and for the services provided around brokerage accounts in the wealth management plans of even the most sophisticated clients,” Taft says. “It’s an entirely appropriate way to add value for clients.”
From compliance to technology and succession, advisors may be under the wrong impressions about launching their own firms.
But for RIAs in particular, the term “stockbroker” has only negative associations.
“Have you seen ‘The Wolf of Wall Street?’” asks Brent Weiss, a CFP and co-founder of virtual RIA Facet Wealth. The 2013 Martin Scorcese film starred Leonardo DiCaprio as a hard-partying, hard-selling boiler-room broker conning innocent investors out of their money. It’s based on a true story, which makes it all the more wince-inducing for financial advice professionals.
For Weiss, the problem is the stockbroker function, not the title: “As the industry evolves and consumers demand more from their advisors — more integrated advice, fair and transparent pricing, a fiduciary standard — there will be true professionals that elevate their standard of care and advice and there will be those that simply change the words they use.”
Does the catchall title “financial advisor” confuse clients? Possibly, but in this regulatory environment, there are no rules on who can call themself a financial advisor. And the number of designations an advisor can earn is similarly confusing.
Says Weiss: “Until our industry develops a clear standard similar to what the CFP Board is creating with CFP Professionals, the old guard will find ways to use the loose standards to their advantage.”
