advisory relationship

I Was Wrong, and I Apologize

© Can Stock Photo / TanawatPontchour

Thirty-some years since I first became registered to work with securities, we have been doing business with some people for decades. Some of those, I knew before that—friends, people I admire. I disappointed at least one of those recently. I hate that it happened and I am sorry.

This essay is an attempt to minimize the chance of this happening again. Let me explain.

For many years, my practice included aspects that were like a debating society. I would propose the purchase or sale of an investment to a client, we would discuss it back and forth, and the client would make a decision to take action, or not. This is the old brokerage model of investing.

In recent years, there has been a lot less time for debate as more and more people have engaged me to manage investments as their fiduciary advisor. (This is in my capacity as an investment advisor representative of LPL Financial, a registered investment advisor.) The advisors of Leibman Financial Services collectively serve more than 200 accounts with over $50 million assets through LPL Financial, and the majority of our time needs to be devoted there.

The issue is that these investment advisory accounts hold us to a higher standard. We have all the obligations of the old brokerage arrangements, plus we are obligated to put your best interests first, monitor the investments and your situation over time, and manage everything to stay in line with your investment objective. We manage these accounts without prior debate before we take action to pursue your best interests.

The error I made was assuming a client was not suitable for the investment advisory arrangement. I did not think he would give me discretion to manage his account without debate. But I failed to do him the honor of describing it to him, and letting him make the decision. He was disappointed that he had not heard about the alternative sooner, when the subject came up. I had met our legal obligations, but not the higher standard to which we hold ourselves.

If you are a client with products at an insurance company or investment company outside of LPL, or pay commissions on brokerage transactions inside an LPL Financial account, our relationship is on the brokerage account model. There is nothing wrong with it if those products and that relationship addresses your needs. We are always happy to discuss your holdings and your situation—email us, or call.

If you wonder whether an advisory account might be right for you, please email us, or call. We want you to know the situation, and make an informed decision about the kind of relationship you would like to have going forward. We also need to assess whether we have a good fit with you philosophically—a requirement.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Freedom to Decide vs Freedom to Debate

© Can Stock Photo / JohnKwan

One definition of ‘discretion’ is freedom to decide what should be done. 95% of our investment advisory clients have granted us discretion to trade individual securities on their behalf, for their benefit, in line with their objectives.

In 2016 this privilege was key to making bond purchases, which had to be done on a bulk basis. In other words, one large purchase in the market was divided among scores of our client accounts. The issue is that we cannot talk to eighty or a hundred clients in a short enough time frame to place a bulk order.

The logistics can be daunting. When we learn that a bulk purchase has been negotiated, then we must make sales that same day in all affected accounts to raise the money to pay for the bonds.

Fortunately, we developed a rules-based framework that enabled us to handle all the work on a timely basis. In late 2016 we used the same concept to develop a protocol for trading stocks. This new method is astoundingly effective.

On one day, we placed more than five hundred individual stock trades. We had concluded that a sector we owned was going to have a lot of trouble maintaining revenues and profits and needed to be sold. At the same time, we were excited about the bargains we had found elsewhere in the market. (You can read more about our strategies here.)

We have a high duty to advisory clients, whose situations and accounts we must monitor over time. Even with our new-found efficiencies, we have less and less time for commission-based brokerage business. Because we lack freedom to decide, we only have freedom to debate.

By that we mean to place calls, discuss potential investments, argue or not, and perhaps obtain permission to make a trade in exchange for a commission. The ‘freedom to debate’ part of our business is under $10 million and shrinking. The ‘freedom to decide’ piece is approaching $50 million and growing.

We are committed to our three key activities: talking to you, researching investments, and managing portfolios. We can do the most good for the most people if we have freedom to decide. This is why we ask you for that privilege and obligation. If you have any questions about this, or any other aspect of your situation, please call or write.


In a fee-based account clients pay a quarterly fee, based on the level of assets in the account. In deciding to pay a fee rather than commissions, clients should understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs.

Investing involves risks including the possible loss of capital. No strategy assures success or protects against loss.