What does it mean when trillions of dollars are moving in the same direction?

A million used to be a big deal. Now it's a trillion. (So long billion, we hardly knew ye.)

When one trillion dollars of personal assets are moving from one place to another, something must be happening. According to a recent report, $400 billion of personal investment assets left the banks and brokerage firms--also known as "wire-houses"-- between 2008 and 2009, and another $800 billion was projected to leave the wire-houses between 2011 and the first quarter of 2014*.

Where are people taking their hard-earned funds? And equally important, why?

Before we answer these questions, let's take a quick look at some realities of the investment world. There was the precipitous fall in the financial markets in 2009, which heightened investors’ attunement to their portfolios.  There have been major regulatory problems at large financial institutions. And there has been an increase in the sophistication of consumers about what actually constitutes financial advice.

So many individual investors have reacted by seeking advice that is better aligned with their interests. The idea that financial salespeople can even be called "advisors" is now under scrutiny, as financial regulators seek to figure out the fiduciary standard. To the more discriminating consumers of financial advice, the fiduciary standard is the gold standard, wherein the advisor is required by law to put the interests of the client first. We wonder: why should that seem like such a novel idea?

Ironically, the wire-house advisors themselves are leading the trillion dollar flight from their host firms. According to the report cited above, departing wire-house brokers took $64.9 billion of client assets with them in 2012, almost double the 2011 amount of $32.8 billion. No surprise here: who has more knowledge about the workings of the mother ship than its advisors?

And where are these advisors--and their clients--finding the objectivity, expertise and personalized treatment they deserve? With advisors who are independent, credentialed and unaffiliated with banks, brokerages or insurance companies. In other words, with firms whose professionals offer expert, individualized financial advice. Investors are voting with their funds: the share of assets departing wire-houses and going to independent firms almost quadrupled between 2011 and 2012.

We regard this as a landmark shift in the investment advisory business. It represents a new awareness on the part of investors and consumers of financial advice, an awareness that is the catalyst behind the trillion dollar march to independence.

*Envestnet Compendium of Industry Trends, April 2013

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The information provided above is general in nature and is not intended to represent specific investment or professional advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship. Please see the “Contact Us” section of our website, www.gwwade.com, for information on contacting GW & Wade.