DSF WEALTH MANAGEMENT, LLC
The Challenge
After working in the banking and insurance industries for many years, David Strother, AIFA®, CFP®, now chief investment officer and financial services director for DSF Wealth Management, LLC launched an investment advisory practice in partnership with a small CPA firm in 1998. According to Strother, the alignment of financial services with the accounting services firm is synergistic, as all financial products at some point will affect the tax return. He liked the environment of independence that the CPA offered, and that it was more of a solutions-driven approach, rather than the product-driven approach of the insurance industry.
At that time, CPAs in Louisiana were allowed to offer investment advice and sell financial services. Strother believed his approach as an independent, registered investment advisor would be a comfortable fit within such an environment, and he was right. As his practice working with small, private businesses and local professionals grew over the years, through collaboration with the CPA, he further developed and implemented his own RIA by incorporating fi360’s Prudent Practices for Investment Fiduciaries, having attended one of the very first classes offered by the organization in 1999.
In 2000, he established Wealth Care Group Asset Management, LLC to provide complete and comprehensive wealth management services to clients throughout south Louisiana and various other states. In 2006, DSF Wealth Management, LLC was established through the merger of DS&F Financial Services, LLC (an affiliate of Darnall, Sikes, Gardes & Frederick, a Corp. of CPAs), and Strother’s Wealth Care Group Asset Management.
The merger triggered an important decision for Strother, as DS&F Financial Services, LLC had an affiliation and registration with independent broker/dealer 1st Global and the state of Louisiana does not allow dual-registration for advisors. He had to choose between remaining an independent RIA at the CPA firm's financial services affiliate, or terminate his independent RIA and move under the umbrella and supervision of 1st Global's RIA. The combined assets of Strother's RIA and the CPA firm’s financial services affiliate were large enough to require significant compliance staff, and yet not large enough for that to be economically feasible.
The Solution
For most, the decision and the move would have been daunting, but Strother was lucky in choosing his new firm wisely, so the decision to convert his relationships to 1st Global's RIA was not that difficult, as this larger CPA firm already had a significant culture of independence. 1st Global was founded and is run by CPAs, so even though it is a broker/dealer, that status is merely for selling agreements. The focus of the B/D is independent solutions for wealth management, regardless of the products required to solve the issues.
Most financial advisors today take a route just the opposite of the one Strother chose, by moving from a broker/dealer to being an independent RIA. In Strother's case, however, the culture of the organization he joined in 2006 already embraced a very similar mindset about transparency in fees, doing what's best for the client and holding themselves to a higher standard of care, not just a standard of suitability. So the cultural match was a perfect fit, and he was easily able to continue applying fi360's Practices and utilizing fi360 Tools in working with his clients through DSF Wealth Management and its affiliation with 1st Global's RIA.
"Working under 1st Global's RIA allowed us to outsource most of the compliance function, while providing us more flexibility, which we believe benefits our clients,” said Strother. "It allows us to operate in the best of both worlds. We don't sell any proprietary products and we'll never make a recommendation based on compensation. We may make selections that pay us a commission – such as limited partnerships, structured products and insurance products, because we feel it's best for the client, but we always communicate what our compensation is."
DSF Wealth Management generally works with an "Assets under Management (AUM)" fee, rather than just a flat fee, so they're rewarded for success and penalized for lack of success on their clients' behalf, he noted. “We believe this approach keeps us on our toes and more closely in step with what’s happening with our clients, as it mandates that we put their best interests first. Plus we put our own money into these same investment vehicles first, so this really helps us align with our clients' long term interests."
The Bottom Line
Strother has undergone various training sessions with fi360 and has long shared fi360's Practices with his clients, along with the in-depth analytical reports he's able to create through the online Tools, showing the status of a client's investments. "The comprehensiveness of these reports really resonates with clients as well as with the other financial and legal firms with whom we work. It's really helped me educate clients about their investments. Walking them through the detailed monitoring process and showing our successes as well as those investments which aren't performing as we had hoped, has engendered a tremendous amount of confidence and trust. Many advisors only talk about what's going well – this approach shows the good and the not so good, and our clients have responded to the honesty of our approach."
As registered representatives of a broker/dealer, DSF is not required to hold itself to a standard of fiduciary responsibility in all of its relationships. But coming from being an RIA, their b/d allowed them to embrace the fiduciary process and make open communication and disclosure with clients as taught by fi360, among their guiding principles. Otherwise, the decision to a b/d would have been a much more difficult one. "We believe it's too hard to manage two separate standards of care, so we always hold ourselves to the highest level of accountability, and as such, it's one of the things that has differentiated the firm, and helps us retain clients. I think it's a testament to the fi360 approach in that it can encompass a variety of business models, including ours," said Strother.