Creative Chaos – Creating a Win-Win Situation for Investors and Investment Advisers

Having been involved in the quality of investment advice arena for twenty-five years in some capacity (e.g., securities attorney, RIA consultant, B/D compliance director), I have seen numerous changes in both the industry and the surrounding legal/regulatory environment.

There is an increasing recognition of the power and potential benefits of “chaos” and “deliberate disruption” in producing helpful innovation and beneficial change. “The Chaos Imperative: How Chance and Disruption Increase Innovation , Effectiveness and Success” and “The Innovator’s Manifesto: Deliberate Disruption for Transformational Growth” both provide an excellent discussion of the concepts.

As I have told my consulting clients, I think the current debate over a universal fiduciary standard presents significant opportunities for investment advisers. The recent decision by the House of Representatives to delay consideration and implementation of a much needed universal fiduciary standard, denying investors the protection they desperately need, further demonstrates that the timing is right for proactive investment advisers to engage in “creative chaos” and “deliberate disruption” in order to inform the public of their services and the “value added” factor that their services provide.

Truly independent investment advisers have a distinct advantage over investment advisers that are dually registered, as they are not limited in their marketing approaches. Independent investment advisers can, and should, take advantage of their independence to stress the fiduciary issues inherent in the broker/non-fiduciary standard and the investment adviser/fiduciary and the implications of both for investors.

In order to drive the difference home to clients and potential clients, I have suggested to my clients that they concentrate on a simple question – “what is so objectionable and onerous about requiring that anyone providing investment advice and investment recommendation be required to put their client’s interests ahead of their own?”

The financial service industry and the investment industry continue to argue that a fiduciary standard would deny investment advice to the public. True investment advisers should point out that this argument is disingenuous at best, as a fiduciary standard would not prevent stockbrokers and other financial advisers from selling investment products and earning commissions on such sales. A fiduciary standard only requires that any sales of such products be in a client’s best interests.

Investment advisers should point out to clients and others that the ongoing efforts of the financial services industry and the investment industry to block a universal fiduciary standard amount to what is known legally as an admission against interests, an admission that their business model cannot perform efficiently if they are required to put the public’s interest of their own, as they know full well that a number of their products are not in a client’s best interests. And yet the House of Representatives effectively sanctioned this on-going abuse of investors by blocking a universal fiduciary standard.

Proactive investment advisers can take advantage of the current fiducairy situation and create “chaos” and “deliberate disruption” to demonstrate their worth to clients and prospective clients by pointing out the on-going attempts to deny the public the protection they need and the fact that investment advisers are already legally required to always put a client’s interests first. Investment advisers should then take the opportunity to demonstrate the “value added” aspects  of their services by analyzing a client’s or prospective client’s investment portfolio and pointing out problems.

I offer quality of advice services to pension plans, trust and investors. One of my primary tools is a proprietary metric I created a couple of years ago, the “Active Management Value Ratio™ (“AMVR™”). The AMVR™ is a simple cost-benefit metric that allow investors, advisors and investment fiduciaries to evaluate the cost efficiency of an actively managed investment through the use of simple subtraction and division. The AMVR™, in essence, allows both the public and investment professionals to quantify the prudence of an investment.

Once one is acquainted with the AMVR™ calculation, in most cases it takes less than a minute to calculate an investment’s AMVR™ score. The relatively small investment of time required to calculate AMVR™ and the potential impact of the findings can provide advisers with a powerful marketing tool, as the AMVR™ usually shows a prospective client that the incremental cost of their current investment are significantly greater than the incremental benefit, if any, provided by such investment, thereby creating a win-win opportunity for both the investment adviser and the client.

The opportunity has already been created for investment advisers. The next step is for the proactive investment adviser to seize the opportunity to be creative by creating “chaos” and “deliberate disruption” to demonstrate their value added proposition to prospective clients, and in so doing build their practices and help clients and prospective clients protect their financial security.

For additional information about the Active Management Value Ratio™, please visit my blog, “CommonSense InvestSense ( My article on the new “back of the envelope” version of the AMVR™ will be released on Monday, November 11, 2013 on the Paladin Registry blog (

About jwatkins

I am a securities and ERISA attorney. I am a CFP Board Emeritus™ member and an Accredited Wealth Management Advisor™. I am a 1977 graduate of Georgia State University and a 1981 graduate of the University of Notre Dame Law School. I am the author of "CommonSense InvestSense: The Power of the Informed Investor" and " The 401(k)/403(b) Investment Manual: What Plan Sponsors and Plan Participants REALLY Need To Know. " As a former compliance director, I have extensive experience in evaluating the legal prudence of various types of investments, including mutual funds and annuities. My goal is to combine my legal and compliance experience in order to help educate investors on sound, proven investment strategies that will help them protect their financial security.
This entry was posted in 401k, 401k compliance, 401k investments, compliance, fiduciary compliance, fiduciary law, investments, retirement plans, RIA, RIA Compliance, securities compliance and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink.