Long considered one of the major financial powerhouses of the United States, as well as home to some of the richest tycoons ever to snack on caviar, Wall Street’s reputation looks to be on the decline. The financial crisis it helped create certainly hasn’t helped matters. Public opinion towards the institution is at its lowest point in 40 years. Films like “The Wolf of Wall Street” and “Wall Street” depict brokers as greedy, infantile, and nearly subhuman. Occupy Wall Street seems to have made its point. We Americans simply aren’t big on banks right now.
And now it seems like we’ve finally spoken enough truth to power. Wall Street firms are losing business to an upstart new brand of broker known as a Registered Investment Advisor, or RIA. The rise in RIAs has caused a significant siphoning of Wall Street cash flow. Nearly 4.75 trillion dollars has been pulled away from Wall Street’s four largest firms, with Morgan Stanley Smith Barney, Wells Fargo, UBS Financial Services, and Bank of America Merrill Lynch all reporting underwhelming profits, all thanks to a new brand of investor with a healthier, more impartial business model.
RIA’s Change With The Times
RIAs don’t operate on the usual commission-based model, meaning they’re under no impetus to sell you anything special. RIAs are legally bound to put client interests first and are by all accounts effective at it. They take a one or two percent fee that stays steady, win or lose, and Wall Street firms are tripping over themselves to adopt this bold new strategy.
Of course, the financial crash of 2008 cost them some serious goodwill in the public eye, and reforms have been few and far between. The most important reform attempt came with the Dodd-Frank bill, signed into law by President Barack Obama in 2010. In essence, the bill called for more oversight and transparency on Wall Street, which had been allowed to essentially self-govern up until that time. In practice, it’s been a mixed bag. As is usual in our hyper-partisan new world, many from one side of the aisle claimed the bill does far too little, whereas those on the other side claim it’s too much.
In theory, the bill makes sense. Many Wall Street firms have been deemed “too big to fail”, such that their closing would have catastrophic effects on the U.S. economy. The Dodd-Frank bill created several committees intended to monitor these companies and even break up ones that are deemed too massive and dangerous. Caps have also been placed on fees for mortgage brokers who might benefit from overselling property to misinformed consumers. While all this seems reasonable in theory, the actual execution of these powers has sometimes been suspect. In addition, smaller banks and startups have struggled to stay afloat in this new world of heightened caution. It’s a volatile time on Wall Street that will likely continue for years to come.
Be Wary Of Wall Street, Choose Your Investment Team Wisely
Basically, if you’re thinking of investing, keep a wary eye on Wall Street. These banks have cost us all a lot with unhealthy business practices and the attempts to reform them are a mixed bag. RIAs are a growing alternative. Consider pouring your money elsewhere, at least until Wall Street can do some serious housecleaning.