A couple of years ago, after reading one of his investment articles, I reached out to Norb Vonnegut. We met in Newport and talked investments at my all-time favorite burger joint, Mission. Yesterday Norb hit the nail on the head about why Spotify is eschewing Wall Street for it’s IPO.
It will basically be a DIY deal. The game is up for the self-dealing, old school wire houses. The future will continue to favor investment firms that abide by the fiduciary rule, or in other words, serve their clients’ best interests. It’s a rule that Richard C. Young & Co., Ltd. has always followed.
The fiduciary solution
Back to Spotify’s direct listing. Sure, it is one deal, but one that implies loss of trust in Wall Street’s expertise, perhaps even its character. Something is broken when a streaming-music company, rather than an investment bank, is improving the path to public ownership. If Spotify is successful, it may be too late for Wall Street to fix IPO machines that systematically feed clients to the investment professionals at big broker-dealers
Direct listings showcase the power of unhappy clients. And given the arrival of robo advisers, it seems clear that client dissatisfaction extends beyond the I-bankers, stalking the halls in their Ferragamos or Jimmy Choos, all the way to the bullpens of wealth management. Spotify’s course to public ownership is simply more evidence of the importance of stepping back, assessing what makes clients less than deliriously happy, and then fixing it—whatever it is.
In my view, outstanding wealth management begins with fiduciary duty. Whenever the motivations of investment professionals are in doubt, the ensuing distrust creates reasons for clients either to look elsewhere for what they want or to build it themselves. With so many challenges on so many fronts to Wall Street’s business models, I believe it is time for broker-dealers to retool, abandon conflicted practices (like the revenue-sharing arrangements known as “pay-to-play”), and embrace the fiduciary standard.
Otherwise, the new thundering herd will be Silicon Valley engineers coding better wealth management experiences for investors.
Read more from Norb here.