1. KELLY WEALTH MANAGEMENT
Independent Advice in a Homogenized World

2. Kelly Wealth Management 2
INDEPENDENT ADVICE IN A HOMOGENIZED WORLDINDEPENDENT ADVICE IN A HOMOGENIZED WORLD
Executive Summary
In today’s complex global financial
markets, clients need sound and prudent
advice more than ever. While markets have
always been challenging and perplexing,
today’s markets operate at an unimag-
inable pace that can be very intimidating
to investors. Equally complex has been
the evolution of advice. The business of
advice has become homogenized with
all participants portraying themselves
as unconflicted advisors. At every size,
from large institutions to high net worth
individuals to small investors, we find
that clients are unaware of the nature of
their relationship with their advisor. This
paper endeavors to clarify the difference
between three of the most common
sources of advice.
The three primary groups that dominate
the investment landscape for institu-
tional and high net worth investors are
fiduciary advisors, brokers and asset
managers. Over the years, the lure of
increasing revenue through various forms
of compensation in the financial industry
has attracted many other forms of advi-
sors – insurance, tax, fee-based planners,
etc. As a result, despite how they appear,
not all advisors are alike. Clients should
take caution when selecting an advisor
and seek a credentialed professional who
can provide investment advice that comes
from rigorous analysis and research, while
having a legal obligation to do what is in
the client’s best interest. It is also imper-
ative that investment advice is a full time
avocation of your advisor.
Historical Background
Since 2000, we have seen staggering
change. The technology revolution has
altered the global economy in spectac-
ular fashion. Imagine your advisor, in
1996, predicting by the end of 2013 that
China would be our biggest economic
competitor; the stock market would see
two of the worst three bear markets in
100 years; the US would teeter on the
edge of financial collapse; Merrill
Lynch, Bear Sterns, Lehman Brothers,
Wachovia and AIG would all fail; the
US would be on the cusp of energy
independence; and a manufacturing
renaissance in the US would be
underway. Going through such radical
change has created remarkable
volatility and complexity in the
global financial markets. Clients have
increasingly turned to their advisors to
help them navigate these tumultuous
times; yet at the very moment clients
needed to trust and have confidence in
their advisors – and their firms – many
of these firms were collapsing from
irresponsible behavior. Trust was lost,
and clients were left feeling betrayed.
The erosion began with the exuberance
and greed that surrounded the tech stock
bubble in late 1999 and early 2000; inves-
tors felt betrayed by advisors’ encour-
agement to invest in massively
elevated valuations of tech stocks.
Just as that confidence was being
restored, the financial crisis of
2008-2009 changed the investing
landscape forever. Despite the erosion
of trust, investors have the opportunity to
come away with valuable lessons from
each crisis.

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
In this environment, there is a premium
for advisors that can offer advice that is
free from the traditional conflicts inher-
ent in the brokerage model and does not
reward the use of proprietary products. To
that end, the rush for money managers,
banks and brokerages to label their sales
staff as advisors is not terribly surprising:
they are simply trying to satisfy a basic
need of today’s sophisticated client.
Elements of Advice
With this background, the obvious ques-
tion for clients is - Do I have an advisor,
broker or sales representative – and what
is the difference?
On its Smart Investing web page, under
the heading “Learn About Different Types
of Investment Professionals,” the Financial
Industry Regulatory Authority (FINRA)
offers the following definition:
“An investment adviser is an individual or
company who is paid for providing advice
about securities to their clients. Although
the terms sound similar, investment
advisers are not the same as financial
advisers and should not be confused.
The term financial adviser is a generic
term that usually refers to a broker (or,
to use the technical term, a registered
representative).”
Unfortunately there also seems to be a
disconnection between the legal and
popular definitions of broker. FINRA
explains, “While many people use the
word broker generically to describe
someone who handles stock transactions,
the legal definition is somewhat differ-
ent—and worth knowing. A broker-deal-
er is a person or company that is in the
business of buying and selling securities—
stocks, bonds, mutual funds, and certain
other investment products—on behalf
of its customers (as broker), for its own
account (as dealer), or both. Individuals
who work for broker-dealers—the sales
personnel whom most people call
brokers—are technically known as regis-
tered representatives.”
In conclusion, FINRA cautions that inves-
tors should “be aware that Financial
Analyst, Financial Adviser (Advisor),
Financial Consultant, Financial Planner,
Investment Consultant or Wealth Manager
are generic terms or job titles, and may
be used by investment professionals who
may not hold any specific credential.”1
This paper seeks to clarify some of this
confusion by examining the roles of three
sources of investment professionals –
asset managers, Registered Investment
Advisory firms (RIAs) and banks/broker-
ages. It is important to note that all three
are important participants in the global
financial markets. Each plays a critical
role in delivering a comprehensive, diver-
sified portfolio to the client. The key is
to ensure that the client is confident that
they are working together to provide
the most comprehensive, independent
advice possible. This can only occur with
an understanding of each role.
The evaluation starts with an under-
standing of the two broad divisions of
responsibility – strategic and tactical. In
football terms, strategy is done by the
head coach. He must consider his team’s
strengths and weaknesses, his opponent,
the environment he is facing, and many
other factors. From this vantage point, a
1
FINRA Smart Investing

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
game plan is set. The coach does not pass
the ball or make a tackle if the game plan
is poor and his preparation inadequate
– not even the best talent can save the
game. Further, if he sees that he cannot
execute on behalf of the team with the
current personnel, he must critically eval-
uate each player and make changes as
needed. Conversely, the captains of the
team, let’s say the quarterback on offense
and the linebacker on defense, are in
charge of executing the plan to its best
potential. They are the tactical players.
They must make good throws and tackles.
Poor tactical performance will make the
best game plan futile. These players may
be very strategic in their thinking, but it
is related to their specific task. Not even
Peyton Manning, one of the most strate-
gic QB’s in history, calls a defensive play.
Each is integral in success, and each has
a specific role. However, each sees the
strategy of the team with biases specific
to their position and particular needs. It
takes the third party (head coach) to make
the strategic decisions on their behalf.
Like our example of a professional foot-
ball team, the first step in investing is to
hire a head coach to develop a strate-
gic plan based on the specific needs of
each individual client. This critical first
step is true of both individuals and insti-
tutions. A good strategy is developed
by an advisor and client working closely
together to understand the long term
goals and objectives of the client; the
time frame in which to achieve these
goals; the cash flow demands now and in
the future; the current structure of assets
(liquidity, investment type, etc.); and the
client’s ability and willingness to tolerate
risk. There are many other subtle inputs
to consider, but these cover the main
topics. Once a sound investment strategy
is in place, the advisor must choose from
myriad options to tactically implement
on the client’s behalf. Whether indi-
vidual stocks and bonds, mutual funds,
separately managed accounts, alter-
native investments or ETFs, the advisor
must look at all options and select those
which most appropriately fit the
client’s strategic investment plan needs.
What if you hired a linebacker to do the
work of a head coach? Chances are
you would have a defensive focused
plan – and would be missing
opportunities on the offensive part of
the game. This is why it is critical to not
hire a tactical manager to manage
strategic portfolio management.
However, it’s best if the head coach
does not go out on the field to make
tackles. A good head coach/advisor
will find the very best talent to execute.
In the tactical allocation, independent
judgment is critical. If the advisor is
beholden to a tactical investment vehicle,
then he or she may consciously or
subconsciously restrict the client to that
investment solution. As a result, the client
could potentially miss the best possible
solution.
As we look at the three choices of advice,
it is important to view each in the context
of the two categories - strategic and
tactical.

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
I. Asset Managers
Asset Managers are purely tactical in
their approach to advising clients. Asset
managers can be defined as organizations
whose primary purpose is to select invest-
ments that fit a clearly defined criterion.
For example, in the mutual fund world,
the job of a US large cap value manager
is to use his or her particular expertise to
select the very best stocks and drive the
best risk adjusted return possible within
the defined group of companies that have
large capitalizations, are domiciled in
the United States, and meet fundamen-
tal characteristics of a value stock. If an
institutional client was concerned about
having too much of his or her allocation
in US large cap value, would the manager
of this fund be the right person to ask
about moving money to International
small cap stocks, alternative investments,
or US treasuries? Even if the manager
were honest and forthright in his or her
advice, he or she would have no ability to
determine how much money to allocate
to the other classes or what alternative
investment vehicle to choose as the best
option. In other words, we don’t want
Peyton Manning calling defensive plays.
Firms that offer managers in various asset
classes like mutual fund families or sepa-
rate account management companies
(defined as an asset manager that buys
stock in your name, as opposed to owning
mutual fund shares) attempt to retain
a client’s assets by providing offerings
in various classes. Their representatives
may provide valuable advice to clients
regarding the need to diversify away from
one asset class to another. The conflict
is obvious: asset managers are incented
to keep the money in house. While these
organizations may be very good tactically,
can they provide advice as to the holistic
health of an investment portfolio or finan-
cial decisions? What do they recommend
for allocations to disciplines they do not
offer? Do they have the expertise to opine
on those topics? The defined focus and
scope can often work against a client, if
not balanced with a strategic outlook and
additional managers.
Diverse asset management companies
are valuable partners to an independent
advisor. Their offerings are necessary
to the successful implementation of a
strategic plan. That said, the strategic
advisor picks the asset manager, the asset
manager should not provide the strategy.
II. Investment Banks/Banks/
Brokerages (Wirehouses)
Perhaps the most confusing change in
the financial services business has been
the blurred distinction between brokers
and advisors. There are many brokers in
banks and brokerage firms whose titles
include the word “advisor.” This is like
our example of the strategic thinking
quarterback. They may be allowed to
call plays, but they are restricted to their
position and a predefined set of plays.
They do not have the resources or the
holistic view of the whole team to make
decisions other than those in their imme-
diate purview. Simply put, investment
banks, banks and brokerages are tactical
implementers. They are manufacturers
of important financial products that help
strategic advisors implement clients’
financial plans. Unlike asset managers
(who may be owned by these organiza-
tions), they create many different types of
products in many different asset classes.

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
Additionally, since the repeal of the Glass
-Steagall Act2
, these organizations have
attempted to create a fully integrated,
one-stop shop to purchase investment
products, banking products, liability prod-
ucts, investment banking transactions and
more.
While representatives of these organi-
zations hold titles of advisors, they are
in fact brokers by definition3
. Their firms
make money on the products they sell,
as well as allow their brokers to charge
a fee for advice. Most clients do not fully
understand the extent of the conflicts of
interest that exist. In addition to paying
a fee or commission to the broker, each
manufacturing area and trading area
makes a profit. The term “scrape” is often
used to describe this: a profit is “scraped”
from the client at every stop in the fully
integrated enterprise.
If you are currently a client of one of
these firms and think this does not sound
correct, consider asking your representa-
tive the following questions:
• Are you a fiduciary? Meaning, are you
legally required to act in my best
interests first, or is your primary legal
responsibility to your firm and its
shareholders?
• Are all fees that I pay disclosed and
discussed in our reviews? Do I only
pay your firm a fee for your advice,
which you have communicated to
me?
• Do you or your firm collect any
performance fees or other fees
from managers for allowing them
into your first roster of acceptable
managers, sale charges or 12b-1 fees?
• Does your firm have a proprietary
trading desk? Does that desk take
positions against its clients? Does it
collect a profit from trading on my
behalf or in my account?
• Are there restrictions on what manag-
ers or individual securities you can
advise me on? Can you recommend
a security on your firms sell list? Can
you recommend an asset manager
outside of your various asset
manager programs? If so, is your
compensation affected?
• Do you use and or can you provide
me with research from outside
your firm? Can you choose your
research or must you use pre-
approved research from your firm?
These questions foment an open dialogue
about your relationship with your advisor
and his or her firm. At his or her current
firm, does the advisor have full indepen-
dence to offer the investment that is best
for you, regardless of what firm originates
it? Is he or she legally responsible to do
what is in your best interest first? Does he
or she fully disclose all compensation?
Many well-intentioned, qualified advisors
work in these firms and work hard on
their clients’ behalf. Unfortunately, they
are beholden to their firm’s restrictions,
and therefore, are often limited in acting
solely in the best interest of their clients.
There is currently legislation attempting
to require the fiduciary standard for all
brokers; this would be a very positive step
to ensure that clients are protected in the
case where the firm and client’s objectives
are conflicted. Unfortunately, many of
the largest firms are fighting this standard
as it threatens their business model.
2
http://legal-dictionary.thefreedictionary.com/Glass-Steagall+Act
3
http://www.investopedia.com/terms/b/broker.asp

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
III. Registered Investment Advisors
A Registered Investment Advisor (RIA) is
a fiduciary advisor that operates inde-
pendently from asset managers and
brokerage firms4
. He or she has a legal
fiduciary responsibility to put the client’s
best interests first. The independent fidu-
ciary advisor is your strategic consultant,
your head coach. An RIA that is support-
ed by an open-source platform can
look across the landscape of Wall Street
to find the very best options for clients.
Because an RIA by definition does not
manufacture product, an independent
advisor can give true independent advice.
Registered investment advisory firms use
asset managers, brokers, banks, insur-
ance companies and other sources to
implement their strategy. They leverage
competition so that these various tactical
providers compete for the client’s busi-
ness. RIAs must fully disclose their fees to
clients and create a fully transparent rela-
tionship with regard to compensation and
any potential conflicts of interest. Even
where relationships exist with representa-
tives of wirehouses and asset managers,
it is important to have a fiduciary advisor
overseeing these relationships to ensure
assets are being allocated to the ideal
tactical solution. This invaluable resource
provides the strategic advice clients
demand.
As with any profession, the challenge
when working with an RIA is finding one
that fits the particular needs and values
of the client. A large number of RIAs are
smaller businesses that may not have
access to leading brokerage firms or asset
managers. While client-centric, these
firms are often not well equipped to meet
the complex needs of a high-net worth
(HNW) or institutional client. Since the
2008/2009 financial crisis, there has been
a significant and growing movement of
the largest, most sophisticated teams
from the brokerages and banks towards
independence through a Registered
Investment Advisory firm. These financial
advisory teams have the ability to advise
the HNW/institutional community with
the added benefit of independence. With
more choices of managers, products,
research and lending resources, these
experienced teams can now provide
the extraordinary level of advice that
HNW/institutional clients have become
accustomed to, without the conflicts
that existed in their prior firms. Perhaps
this is why according to Cerulli Research
Associates there will be more independent
advisors than wirehouse advisors by 2016.
The charts below demonstrate the cause
– massive integration of leading firms in
the industry as a result of the 2008/2009
financial crisis – and the effect – a shift of
financial advisory practices towards inde-
pendence. This movement is in the best
interest of the investor who benefits from
the fiduciary responsibility of independent
advisors.
4
http://legal-dictionary.thefreedictionary.com/fiduciary;
http://www.investopedia.com/terms/f/fiduciary.asp

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
Industry Shifts & Consolidations
Advisor Market Share - Move to Independence
Surviving firms
Lehman Bros
Smith Barney
CitiWachovia
UBS
$794 $1,100 $2,135 $1,649
6,796 15,263 17,000 17,500
Wells Advisors
Bank of
America
Morgan
Stanley
AG Edwards Merrill Lynch
Consolidated/closed firms
Assets under Management
($billion)
Headcount
63%
56.8%
54.8%
51.8%
37%
42% 43.2%
45.2%
48.2%
30%
40%
50%
60%
70%
80%
2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 2017E
Non-Independent advisors Independent advisors
Source: Cerulli Associates

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
It is important to note that some RIAs
manage money. In other words, they run
portfolios of stocks, bonds, etc. The key to
managing a relationship with an indepen-
dent advisor is through disclosures and
choice. As long as the RIA is clear about
potential conflicts, transparent regarding
costs, and offers the client alternative
options, then the fiduciary relationship
exists and is powerful. In fact, many
clients enjoy the added benefit a money
manager brings in selecting other money
managers.
The key to a successful relationship with
an RIA is selecting the right one. Finding
the right fit is important work with required
due diligence. We recommend the follow-
ing questions to assess compatibility:
• How large is your team?
• What are your specialties?
• Are you planning based?
• What additional services outside of
asset management do you provide?
• What credentials does your team
carry?
• How experienced are you/your team
members?
• What roles do each of your team
member’s play?
• With whom will I work?
• What is your background?
• What type of client do you normally
work with?
• Does your firm provide you resources
to ensure you can spend your time
advising me?
Going through this due diligence process
will build a relationship. If you are working
with a great advisor, it is likely he or she
will have many more questions to ask you
as well. This process builds confidence as
you start you journey together.
Conclusion
As we have stated, never has independent
strategic thinking been more important in
the financial services industry. The global
financial markets continue to change
rapidly and require significant expertise to
navigate these changes. Understanding
your advisor’s role and legal priorities is
an essential first step. Every client should
sit down with his or her current advisor
and have a detailed discussion as to their
capabilities, compensation and resources.
Completing an honest critical evaluation
of your current relationship will help
you build confidence and increase your
understanding of the services you are
receiving. You are entitled to comprehend
an advisor’s legal duty and how he or she
makes money.
What if you trust your advisor, but find that
he or she is at a firm with which you are
not comfortable? What if he or she does
not have a legal fiduciary duty? Seek out
and work with an independent fiduciary
counsel to aid in overseeing the financial
strategy. He or she will be legally obligated
to assess your current investment tactics
and strategy, and advise based only on
your best interest. While the relationship
with your current advisor may change, it
does not have to be eliminated.

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INDEPENDENT ADVICE IN A HOMOGENIZED WORLD
An advisor working in a Registered
Investment Advisory firm can view your
financial objectives with an unobstructed
perspective and a legal fiduciary duty. He
or she is best qualified to lead a team of
financial professionals – including, but
not limited to, attorneys, accountants,
and even other investment professionals.
In a complex investing environment, there
is nothing more powerful than having the
right team and eliminating the traditional
conflicts of interest that have historically
led investors astray.
Take the first step – begin the conversa-
tion and ask the tough questions. It is in
your best interest.
Please contact me for aditional information, I look forward to continuing this
discussion.
Kelly Wealth Management
Office - (410) 472-5380
Toll Free - (888) 698-6698
217 International Circle, Suite
200 Hunt Valley, MD 21030
www.kellywealthmgmt.com
Kelly Wealth Management | 217 International Circle, Suite 200 | Hunt Valley, MD 21030 | www.kellywealthmgmt.com
Securities offered through HighTower Securities, LLC | Member FINRA/SIPC/MSRB | HighTower Advisors, LLC is a SEC registered investment adviser

11. HighTower
Kelly Wealth Management
217 International Circle, Suite 200
Hunt Valley, MD 21030
www.kellywealthmgmt.com