There’s never been a shortage of sporting euphemism in business, but Dimensional Fund Advisors co-CEO Dave Butler’s take on the shift of professionalism in independent advice in the US offers a unique perspective.
Butler is a towering figure to most people at 6’8” (203cm in an actual measurement system) and was drafted into the NBA by the Boston Celtics in 1987. An injury sustained while playing professionally in Turkey meant he retired without playing a pro game in the States.
However, it was his college days at the University of California (based near San Francisco and colloquially known as ‘Cal’) where he draws on his sporting experience and how it relates to driving change in the financial advice market.
“When I was in college, Cal hadn’t beaten UCLA for 26 years in a row,” Butler says referring to the rival college campus located in Los Angeles. “This coach came in and took over and he put a poster on the front of the desk that said ‘the streak stops here’.”
In the first match-up against UCLA under new coach Lou Campanelli, Cal defeated UCLA 75-67. Amongst the opposing players on court that day was future NBA Hall of Famer Reggie Miller.
“I always look back at that and translate that into some things I’ve seen here with the client experience and re-defining investment advisers,” Butler says.
Butler is alluding to the lesson he learned from his mentor Dan Wheeler, who started the adviser business at Dimensional.
“He was very clear over what he wanted to create,” Butler says. “His mission was really about re-defining investment advice and changing the client experience.”
It’s a story that resonates in the Australian market; Butler compares the current landscape in the US now to what it was previously which had a similar commission-based structure.
Unlike in Australia, Butler says there was no regulatory moment that shifted the landscape and change was instead driven by client demand for independent financial advisers charging a fee for their service.
Referring back to his mentor, Butler says Wheeler’s goal was to “re-define” investment advice by changing the dynamic from selling product to end clients. The streak of a commission-based industry would stop there.
“The bottom line was the adviser was working for the client – that was a big change,” Butler says.
“The client paid the adviser a fee and that gave the adviser the incentive to give their best advice. That was the change and that was his rallying cry.”
Staying in the loop
How the transition towards an adviser-led business worked and continues to work is what Butler refers to as the “feedback loop”.
“A lot of conversations [the company has is] with advisers around what do they need for their practice, what do they need to deliver on the client experience,” Butler says.
“We want to meet the advisers where are they now and where they are now is they’ve gone from being investment asset allocations to holistic wealth managers.”
Butler started his career in financial services 28 years ago and the transition from commission to services over the last five to 10 years has resulted in the expansion of services offered by advisers.
“When people started moving [towards independent advice] it was about investment asset allocation and charging a fee for that service,” Butler says.
“As the business has progressed and the competition has heightened, advisers have been adding in services they previously hadn’t in the early stages.”
Butler points to tax services, estate planning and charitable giving as elements wrapped in the services advisers provided to clients.
“When you look at the business, the fees have stayed about the same, but they’re actually adding a lot of services into that fee,” Butler says.
“There’s a heightened awareness these clients are becoming more sophisticated in terms of their issues.”
Butler adds the success of the independent market in the US was due to the benefits it came with: transparency, low cost, tax efficiency and acting in the best interests of clients.
“That was an experience that clients appreciated – that led to referrals [and] growth in business that was much, much higher than the old business model,” Butler says.
“There’s regulation, but it’s the business that leads and the regulation follows behind. That’s what’s happening in the US. I don’t think of anything in the US that would be a regulatory moment that’s changed or shifted the business, it was more advisers going off on their own.”
Revelling in rivalries
The NBA is currently in the conference finals with the winners of both series to meet for the NBA championship. Butler is still keen to chat about the league.
His Celtics are playing the Miami Heat in the Eastern Conference, while the Los Angeles Lakers are taking on the Denver Nuggets in the west.
“I’ll go with the Celtics of course; in the west, Lakers have had a good run and LeBron is having a heyday year – it will be fun to see a Lakers/Celtics series again,” Butler says, referring to the Celtics/Lakers rivalry that has involved 12 meetings in the NBA finals with the Celtics winning nine.
The Cal Athletic Hall of Famer retains a soft spot for fellow alumni around the league and can double-dip his Celtics support via Jaylen Brown.
“I follow the Cal guys as they move around the league,” Butler says. “[Brown is] probably the top Cal guy right now. It’s fun watching him play.”
Interesting article Chris. In a similar vein to Dave Butler, when we talk about ‘re-defining investment advisers’, Back Office Hero refers to this as “transitioning from a practice to a business’’. It’s the moment when a planner decides that she or he needs to become more efficient in order to grow the practice. But this requires a business mentality, where the question then becomes ‘’what’s good for the business’’. Business planning takes over and before growth is accomplished the business owner must first come to terms with outsourcing repetitive tasks, using technology to gain efficiencies, only taking on ideal clients and measuring your metrics to make better business decisions. Many planners have made these fundamental changes, but our industry still has far to go. Outsourcing the investment solution is one of these practice defining moments to allow the planner to then spend more time helping clients achieve their goals and objectives. At the end of the day, its all about client.