Welcome to the inaugural episode of “Can You Hold My Attention?” – The Derek Bruton Podcast.
We are proud to have renowned industry expert (some might say “the man behind the curtain”) and principal of RIABiz, Brooke Southall, as our guest. Listen as Derek & Brooke discuss and debate:
- Who is benefitting the most from key industry trends such as consolidation, the move to independence, and fee compression?
- The positive changes they see across the industry as a result of the COVID-19 pandemic
- How the digital revolution and the evolution of “fake news” has changed journalism
- Who they feel are the most influential people in the financial services industry today
- Brooke’s insights around the Schwab/TD Ameritrade merger
Derek Bruton 00:36
Friends and colleagues, welcome to my inaugural podcast, can you hold my attention? My goal with this podcast is quite simply to attack the topics which I understand from hearing directly from all of you in the industry are the most important to you. . .
Brooke Southall 02:03
Thank you very much, Derek. Yeah. I'm honored to be your first guest.
Derek Bruton 02:09
All right, and we've known each other for years, Brooke, I know that many years ago, you invited me out to the Bay Area to kayak with you. I think I invited you to a little one on one basketball. Neither of those have materialized yet, but there's much a much higher chance I'll be kayaking with you, then you playing basketball with me. Thanks to my knees.
Brooke Southall 02:29
I say well, my knees aren't good. Alright,
Derek Bruton 02:33
so let's start at 30,000 feet. There's some really key trends in this industry right now. And I've kind of identified three of them. And I want to get your opinion on it. One is the massive consolidation that we see almost every day almost every hour now, in this industry, people buying other firms, people selling to firms, roll ups, what have you so consolidations, a big trend, this move to independence, which is hardly a new trend it's been going on for over a decade now, but but intensifies as we see the industry wake up to the possibilities of what it means to be independent, and the valuations of those businesses. And the last trend I want to talk about is fee compression. Across the board, whether you're an advisor, whether you're a custodian, a technology firm, what have you. So what I'd like to know and what to hear from you broke is who's benefiting the most from these trends? Can? Is it the investor? Is it the advisor? Or is it the institutions that serve them? Well, I
Brooke Southall 03:34
think that if you look at the laws of supply and demand, the adviser comes out way ahead of the investor in India situations. They're just simply not that many advisors. And they still are the only source of general intelligence in the industry, which is far and away the most valuable commodity. And they've got every other tailwind, it seems obviously the market capitalization of securities, the is as never been higher. The demand for advice, demographic trends, etc, are all in favor of advisors. Every time some new technology or other shift in the industry occurs with more competitors, it all seems to accrue to the benefit of the advisor. That's my short answer on advisors. But the it's not as if the investor and the institution are necessarily, you know, suffering in a zero sum situation. I think the investor is better off maybe than they've ever been. They you know, the two things you want out of a free enterprise system are good Prices value etc. But you also want variety, right? And the variety has never been never been more spectacular. Ranging from the most basic Robo service all the way up to the ultra high net worth advisor using alternative investments and a high levels of trust and care, etc. So So I think the, the the investor is is doing well, they're more investors being drawn into the market. So just sheerly bringing people from passbook savings into the investing room is, is in fact happening. And I also think that institutions are doing well, nobody's maybe going out of business, though we're seeing maybe have some attrition, in mutual funds and so on. And we're seeing there are a lot of institutions, and then they all seem to have a seat at the table.
Derek Bruton 06:00
I think that, in my opinion, the investors winning in this game. And you know, Charles Schwab came out when they eliminated transaction fees. Chuck Schwab said himself that he wants to make investing affordable to every American, and at an average of 15 trades a year, which I think is what a count holder trades at Schwab multiplied by $5 a trade that's 75 bucks a year. I mean, isn't that affordable already?
Brooke Southall 06:27
I don't know if it was all that unaffordable. Right. But I mean, there's no question the investor is doing well, in all this. I just think the advisor is in this Uber good position to have, you know, the opportunity for a great career and a growing business. And really not having to be too worried about being disrupted, so to speak.
Derek Bruton 06:55
Brooke Southall 06:56
So anyway, it's, you could argue either way.
Derek Bruton 07:00
Yes, certainly, compared to other industries, I feel. I agree with you. I think the fee pressure has not been as dramatic as people report on with at the adviser level, wearing custodian and institutional hats in the past, between interest rates, being in the gutter, transaction fees being eliminated, pressures across the board, from revenue, share with phone companies, I think institutions are definitely bearing the brunt. But they also have the scale to be innovative. A lot of them do. And we certainly see that out there. Yeah, yeah. All right. I'm gonna jump to the next question. And, you know, I think, again, as I mentioned in the intro, you have some great perspective on this name, one story, or moment that you've reported on it or a business that just from your perspective, rocked this industry, and maybe even still today has a lingering impact on the industry?
Brooke Southall 07:57
I have to say that's, that is kind of a hard question. And I would say that the reason it's a hard question is because the the industry is so decentralized, that it's not super vulnerable to any bombs going off, which is what people like to read about. That said, we do have some centers of influence in this industry, namely that, namely, the larger custodians. And the degree to which I find we challenge them, is where is where we get the big hits. And you end up seeing that article read for years and years and years. Anything to do with the Schwab merger with TD Ameritrade were some of the bigger stories that we've written in a long time. And I just think so much happened. All in that one transaction that not only change their destinies, but change everybody affiliated with them, and anybody who competes with them. And, you know, we finally went to what you might call a zero friction industry, which is what Silicon Valley has been enjoying for 30 years. So, so I would have to say that right. And we could get into more specific stories down the road, but I would I would, I would leave it there for now,
Derek Bruton 09:22
the drill down a little bit for me on zero friction. What do you mean by that?
Brooke Southall 09:27
Well, I think that that trading fees, despite the fact that very few firms, well, very few firms we talk about every day, rely that much on trading income. I think nonetheless, they were a big friction, they were the thing that kept ETFs maybe from being realizing their fuller destiny is something that kept direct indexing from even being in the conversation is maybe a next best thing. You know, a major a major boost for everybody. And brought, you know, brought all things digital to to a higher level. So I think that that there's a law of unintended consequences that we will see in this industry. I think that was a lift. You know, for the industry, I think it was even a lift for the companies that went to zero. It was kind of them capitulating to the fact that they will have to innovate. And I think that's liberating for a Schwab or fidelity.
Derek Bruton 10:31
Yeah, liberating for Schwab and fidelity. Makes for tough board discussions and tough senior management meetings for other firms, right, that maybe don't have that innovative bone, more of an adaption bone in their bodies, and it certainly makes it makes it tougher. Okay. So no, no one story but, but you know, TD and Schwab is certainly one that's at the forefront of people's minds right now. And I'm gonna come back to that. But I want to, I want to dig in a little bit more in, you know, just in viewing what's going on right now with the pandemic, and what has this produced in terms of good things that have changed in the industry? I mean, there's a lot of negative and a lot of tough a difficult situations people have dealt with this pandemic, but what good has come out of it?
Brooke Southall 11:20
Good question, right? It's, it's been like it has for the rest of the world. It's been a giant retreat. It's been a giant period of introspection. And it's been an opportunity to realize that we can question almost everything about how we do business. And I, there's surely things we miss. I just don't think anybody wanted to be first to say, Hey, we're not going to have clients come in. I saw a speech from Mike kitchen last year in San Francisco, where he said before any of this happened, he said, as they cut back on their higher end clients, coming into the office, so much their higher end clients responded by thanking them profusely for not making them come to the office. Right, right. So, so yeah. And I also, frankly, been grateful not to have to go to conferences and not have to do business travel. And I know, I have one friend who is about to quit her job in this industry, because she had to travel a lot. And now that's extended her career, because perfectly happy as long as she didn't have to travel. So So I think it's just been it's been a healthy, healthy thing for the industry. We all kind of miss each other. But I would say I would say it's a good thing. So
Derek Bruton 13:04
yeah, and I've heard from people saying that it's easy to maintain rapport, maintain trust with clients during these times over zoom over conference calls, right. But what they found challenging is developing trust and developing rapport with new clients. And so same store sales, organic growth is, I've seen slow down in this industry, some people will admit that some people won't. But I've kind of seen that slow down if you have you kind of heard the same.
Brooke Southall 13:34
Honestly, I don't have a sense that I have a feel for that. And maybe Yeah, I mean, there may be there's some statistics that will bear that out. It might be too soon. There's so many other factors at any given time, right? But God knows we've seen there's just I've heard that there's the same effect we're seeing it things like Robin Hood, or Schwab, etc. They're all kind of having an amazing year has in fact happened to some some extent on the RA side. And so yeah, it'll be very interesting to see what happens when the dust settles so to speak. I have a hard time getting a grip on on how people are bringing in assets. Well, let's
Derek Bruton 14:23
let's circle back to something more specific to our a biz and, and, you know, things that you live with daily and that's, you know, getting people attracted to click on our a biz to click on the articles to read through them. What are the key components that must be present in an article for you to generate those clicks?
Brooke Southall 14:44
It really, I think, if I were to give you a short, simple answer, it would be you know, we have an abiding belief that people want to read a good old fashioned article that has the aspects that were defined With the journalistic industry been around for 450 years. And then suddenly, when things went online, everybody questioned everything about it overnight. Right. And I think that was mostly a mistake. I think you talk to, when I talk to fellow publishers, they say, well, we can't write an in depth article anymore, because we have too much time pressure, we have to get it out there. And I think that is not a good way to think about it, I think that article just has to undergo a process, it has to be there has to be fortune misfortune, to be relevant to the reader, there has to be, I think you have to touch on the personalities of the people involved. But you know, ultimately, you have to be be challenging something, bring that into the headline, bring that into the lead, have photographs that represent that, you know, have a story, but then also have the other side of that story, to the extent that you can get it. And it really is kind of a symphony for every single article. And we have just decided here that we want to, we'd rather be late and go through that process. And a lot of that is just trusting the reader to not want the cheap thrill of seeing the late breaking news super quick and have only 250 words about it. Right, right. And I really trust the readers in this industry, or just people in this industry are thoughtful, they're loyal. They want to know both sides. They seem to be fairly thick skinned, honestly. So I find as long as I do my best, even if I kind of get something maybe that somebody doesn't agree with, they seem to be pretty good at dealing with that.
Derek Bruton 17:07
But misfortune sells over. sells over fortune, right? I mean,
Brooke Southall 17:12
yeah. Because that's what a newspaper, a newspaper is there to tell the bad news. I mean, I hate to say it. It's not that we don't try to catch people doing things, right. But a PR agency and conference and everybody's all about good news, right? And everybody loves to deliver good news. So it really is up to a newspaper to deliver the bad news. And we can do it because we? Well, of course, we're third party, but also because we do the associated research with that bad news to put it in the right. context into balance. Yeah, and delivering good news, you don't have that same pressure.
Derek Bruton 17:57
I seem to find myself reading Brooks notes at the beginning. Maybe because it's bolded. And it draws my attention and the comments at the end.
Brooke Southall 18:09
Do everybody does that too?
Derek Bruton 18:11
Yeah. So I guess I'm more of the norm here. So I know you pay attention to the comments. But how much do they mean to you
Brooke Southall 18:19
That's a good question. I don't even know what to make of the comments. Right. But what I will say on the positive side about comments is, it proved to me how smarter readers are, because sometimes in the back of my mind, I know I should bring some aspect in and it just doesn't get into the article. And I'm always amazed that within two hours, some reader will sense that lack and put it in the comments. And I'm very grateful. when when when a reader does that I find our comments are most of them are not online trolling kind of stuff. But But it's interesting that everybody says that read the comments first. And these people kind of know, people's speak their mind in the comments. Right. And I think that goes along with journalism. That, right, yeah,
Derek Bruton 19:15
we don't have Yeah, we don't have shrinking violence in this industry. And, and oftentimes, it's just a matter of the streaking violence will come out in terms of the comments, because everyone I know I disagree with a lot of the comments that not yours, but but you know, the people that you're interviewing for these articles, and I've got different points of view. And the question is, do I share those in comments or just I let them pass and move on to the next thing in my day, right? But, but I've always appreciated because I've seen you comment on the comments in your articles, especially when somebody is way off base. So that shows me you take a lot of pride in what you're reporting, which you know, your staff is doing.
Brooke Southall 19:57
Yeah, thank you. No, I do and I do that. Both because sometimes I'll see something that was way off base. And I feel like I owed to my sources who I've convinced to stick their necks out to balance something that's clearly off balance. And also because I do want to encourage comments, and if I don't participate, then what import? Am I
Derek Bruton 20:22
placing? Yeah. And Brooke, you mentioned not your focus is not to get to the big scoop on the latest breaking news and reported, but spend more time. But in this era of misinformation and fake news, how do you guys at Rei biz separate fact from fiction?
Brooke Southall 20:41
Again, it kind of goes back to sticking to journalistic fundamentals right. And we are right off the bat, radically conflicted as journalists as much as anybody else is, right, because we depend on advertising dollars. And typically, the types of people that advertise are perhaps the most likely to get criticized, is their big companies, right. And that's what, and you sort of have to be the bad news about the big, powerful companies in this industry. So the temptation to be fake is there. I do think, you know, the term fake news pretty much applies to political news, you generally don't hear it as much referred to about business rules, right. Now, that said, The, I don't know if there's an industry on the planet, that knows how to spin things, and put a sugary complexion on things as Wall Street. And there's a lot of extra, you know, sort of attitude from some of the PR representatives of the companies in this industry, that journalists will sort of toe the line in a certain certain way. And the fact that it's a small industry, you have advertisers, you have PR people, you get to know something become your friends, there's all kinds of ways that you can get fake in a hurry. And, and a lot of that is again, having faith in the process, faith in the reader, and kind of sticking to it. But the other thing is, the complexity is enormous, just having journalism and advertising, right. But if you've noticed, a lot of the publications that we compete against, have added a whole bouquet of, you know, ways that they interact with the reader, including sponsored content, and they throw conferences and everything else. So I think that adds a whole new dimension of conflict and potential for being a little fake. And so far, we've decided to stay away from conferences and sponsored content and other kind of areas where truth gets shaded or where the boundaries get porous. And I think that's kept us away from fake news. Well, I
Derek Bruton 23:26
can't speak for everybody. But there's I think there's a deeper appreciation for the facts than somebody publication that's out of trying to get to to the forefront as quickly as possible and maybe compromising some of those facts. And so I rather rate for the wait for the good stuff, then then immediately tune into something that may not be true. And I think that transcends every industry, not to SARS. Right.
Brooke Southall 23:55
I agree. I agree. But I think I actually give our industry maybe particular credit for that. I think we are a thinking industry. And I find we are exponentially rewarded for every extra source we bring in and so on. Yeah. And it's tiring to introduce more sources, because then you have to get a new source, you have to rewrite the whole article, these balance gets thrown off.
Derek Bruton 24:27
And I get your point about the PR. I mean, I've been with organizations that have hired PR firms to run interference to reposition quotes to and but I also understand those firms point of view because the the downside of getting something wrong or saying something wrong, or particularly at the wrong way, are exponential the problems that can create so I get while the bigger firms have have had to run interference with PR firms.
Brooke Southall 24:55
I know I get it too, and I remember The publication I was at before a biz in the meetings, PR people always got referred to as flax. And that always bothered me. I always knew, you know, known all PR people are basically good people trying to do their job the best they can. But they are working within a culture that sometimes is challenging for them. I think
Derek Bruton 25:23
my best strategy was trying to hide from certain reporters at events. Yeah. tough to do it.
Derek Bruton 25:32
I always appreciated that you were tall, I could find you. Yes, yeah. So let's zoom out. Again, I want to ask you a question. top three most influential people in the industry in the financial service industry right now, in your opinion.
Brooke Southall 25:47
I'd love I'd love to be creative about this and like, give you some halfway No, you know, lesser known characters or something. But but this is least in the past year, the big players have almost been more aggressive than the smaller upstarts. So there's been a lot of innovation at the top and they have a lot of influence. So I'd say it would be hard not to put Chuck Schwab maybe, you know, up near the top, it's maybe unfair to Walt bettinger, who is been obviously right there. But it was Chuck's decision to go to zero. I mean, I've seen some of his recent videos, and he'll say, I decided to go to zero. He's the first person right. And I just think we cannot over overstate the importance of that. And I think it was an antecedent to the merger with TD, etc, etc. So he would certainly, I think, be on the list. Abby Johnson's not messing around. She keeps trying. She's kept that company at number one and 401k, which I just think is unbelievable. The she's taking risks by moving the former firm forward with things like cryptocurrency and, you know, establishing fidelity now as really the only big choice right to to Schwab on the custody front, so and then. And then you sort of come down between maybe an Eric Clark or bill Krieger. I think they, there's somewhere they exist somewhere in between the custodians and the advisors and are kind of creating another industry in between some sort of a mezzanine layer and they're both good people, they're been around forever and keep keep keep keep trying new things. Right. So shall I, I would I would go I would go with those characters.
Derek Bruton 27:57
Well, you stated in the beginning that it became to this answer was that they're they're not small, you know, startup companies, these are all major companies. Obviously, Orion has become bigger investment certainly become bigger, but fidelity and Schwab, yet their propensity to stay on that cutting edge bleeding edge of innovation. It's been remarkable. And I couldn't agree more trying to disagree with you on some things here broke, but it's not working. Let's try the let the last topic I said I would come back this, what's the aftermath of Schwab and TD coming together?
Brooke Southall 28:34
Well, I think there's already been a lot in terms of when I talk to other custodians, I mean, we'll talk about it in the custodian. realm initially, but it they are all excited as can be about it. Because it has created such clear differentiation. And they're able, they've always been not able to compete, obviously, on sizes that are so they compete on sort of a nimble service ability and some sort of differentiation is sort of a flavor of vanilla, but nonetheless of flavor. And I they all seem to be saying they're gonna get their fair share of advisors that just kind of spin out of this thing. That said, I think that the Schwab Schwab TD is going to be, you know, it's going to be something we've never seen as sort of a super alpha in this business. And I know, you know, from being an environmentalist, you talk about introducing wolves to an ecosystem that doesn't have them in the in the whole environment improves, right. So that's going to happen, because there's going to, there's going to be things they can do with their size, and they're going to be things they can't do because of their size, but it just creates a different kind of player. And I think that accrues to the benefit, you know, the wide of a wide range of people, including advisors and consumers, right?
Derek Bruton 30:13
Well, it's, I think a lot of time when when, when mergers or acquisitions such as these go down emotions get high advisors want to take a lot of phone calls, listen to a lot of people. But at the end of the day, it comes down to blocking and tackling. And Schwab has always done very well that Schwab and TD, you can blocking, tackling that technology into it. It's a good combination. The question is, can they can they maintain a community? Can they maintain that partnership with level with their advisors at this size, and that's the opportunity, other firms will I think try to capitalize on
Brooke Southall 30:54
I agree, and I but I just think there's it's a sort of the same with consumers, like some consumers want to deal with a large national brand and others don't. Right. And so I just I think it creates differentiation. And I'm going to assume for now that that's a positive thing. Is the X Factor of No, no more TD right. So what was TDs destiny and we will never find out we you know, they was it such a great destiny that that we're going to lose? I'm optimistic right now that the combination will succeed.
Derek Bruton 31:30
Well, I'll look forward to seeing this play out through our a biz and your articles and, and your and your notes. And like I said, my favorite comments at the end of these articles. So we'll see how that goes. And Brooks. What's that?
Brooke Southall 31:44
I'll tell Peter Giza. He's my best commenter, I think.
Derek Bruton 31:51
I will thank you again, for being a guest on my inaugural podcast here. This was great. I hope our listeners got quite a bit out of this and and look forward to our next podcast with Liz nesbo from Raymond James, who will be talking mergers and acquisitions have one of the topics I mentioned earlier with with Brooke is one of the key industry trends right now. So thank you again, Brooke. Have a great day, everyone, and thanks for tuning in.
Brooke Southall 32:19
All right. Thank you, Derek. Thank you for good questions.
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