In February of this year, FINRA (the Financial Industry Regulatory Authority) sent a letter to a number of broker-dealers. The aim, in FINRA’s own words was “to better understand industry practices and determine whether firms are taking reasonable steps to properly establish and implement their own cultural values within the firm”. The letter included a ‘to-do’ list, requiring broker-dealers to report an array of elusive aspects of their businesses.
Back in 1964 Supreme Court Justice Potter Stewart famously said “I shall not today attempt further to define… [hard-core pornography]…But I know it when I see it.” Potter’s simple test put a halt to decades of inconsistent judicial rulings distinguishing between obscenity and freedom of speech. The list compiled in FINRA’s letter, shows the regulator probing for similar distinction and defining of that most enigmatic quality: firm culture.

The full list is worth reading but here’s an abridged version:

1. A summary of firm’s policies and processes the firm uses to establish cultural values;
2. A description of firm’s processes used by leaders to establish, promote, communicate and implement cultural values;
3. A description of how firm measures and assesses the impact of cultural values;
4. A summary of firm’s processes used to identify breaches in cultural values;
5. A description of how firm deals with breaches in cultural values once discovered;
6. A description of how firm identifies rogue subcultures that depart or undermine cultural values;
7. A description of how firm compensation practices promote culture values;
8. A description of firm cultural value criteria used in talent management.

FINRA is granting firms rare leeway in defining what firm culture is. “Your firm may have its own definition of “firm culture” that it can use…to respond to this letter”. I can almost hear the collective sigh of relief from thousands of overworked compliance professionals! This leeway is perhaps justified when considering something as subjective and multidimensional as culture.

So what will firms respond with? What is firm culture, and how does it relate to all of FINRA’s points?

Culture is complex and is the product of myriad interweaving factors – history, leadership, and talent are but some. And while each of those elements of culture can warrant their own article, there is another critical aspect every firm incorporates into its culture: the client.
Clients are paramount in wealth management. It is client behaviors, attitudes and preferences that ultimately drive business results. Accordingly, firms fight tooth and nail to promulgate the view that they provide exemplary client service. But remaining competitive in wealth management is more complex than a promise to put clients first.

It was once pointed out to me that every wealth management firm’s ‘About us’ web page is the same except for the brand logo. Each institution (often regardless of size or business model) promises a personalized service; a genuine (almost earnest) understanding of clients and comprehensive wealth management solutions. Yet while firms espouse these sentiments, there are big differences in how firms define, measure and control the delivery of a unique experience for clients.

Take for instance the challenge firms face in balancing client service and advisor productivity. How can advisors deliver the appropriate level of client service while also maintaining competitive levels of productivity? On the one hand, advisors must demonstrate awareness of every client’s goals, priorities and preferences. On the other, they have multiple relationships to manage and must remain accretive to the firm’s bottom line. There is of course a balance to be struck and it is up to firm management to set the tone on how that equilibrium is achieved.
At Scorpio Partnership and McLagan we are connecting relationship manager productivity metrics with client engagement. We firmly believe that this is one way a firm can truly become client-centric (Figure 1).

Figure 1: Understanding the relationship between RM productivity and client engagement (conceptual)


It is these nuances that FINRA is exploring in their latest initiative. Of course every wealth manager claims it has a client-centric culture – but to what extent? How are firms determining client engagement, and how frequently? How is client engagement incorporated into incentives and talent management, if at all? How are initiatives in understanding client engagement established and implemented? How are they prioritized from the top down?

In drilling down to this level of detail FINRA will find significant differences in how firms incorporate the client into firm culture. And while this is positioned as a fact-finding initiative, astute observers note that new rules and regulations often begin with similar explorations.

While there may be no “right answer” to incorporating the client focus into firm culture, it is our view that Justice Potter’s “I know it when I see it” test will not suffice. It is high time that firms carefully consider how client engagement is integrated into firm culture.

News from the world of wealth:

America’s Problem With Saving (There Isn’t Enough of It) – (Wall Street Journal Blogs)
What Advisors Can Learn From Apple – (FA Mag)
Where’s Best For Barclays Private Bankers in Asia – (eFinancialCareers)
Salesforce’s Wealth Management CRM Goes Live – (
Wealth Managers’ Push for Scale Triggers M&A Surge – (Financial Times)

Thought of the week:

‘My mother said to me ‘If you become a soldier, you’ll be a general. If you become a monk, you’ll be the pope.’ Instead I became a painter and wound up as Picasso.’ – Pablo Picasso

Coming events in the world of wealth:



Joseph EbinAuthor: Joseph Ebin, Senior Analyst at Scorpio Partnership.
Expertise: Joseph focuses on the key performance indicators at wealth managers, and in particular, the linkages between performance, reward, and the client experience.
Background: Joseph joined McLagan in 2013 where he was responsible for data management and analytics relating to wealth management performance and reward. Since joining the Scorpio team Joseph focuses on performance, reward, and client insight.


Photo from Wicker-Furniture, used under creative commons license

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