Frank Thoughts: Client or Customer?
Frank Boland
July 26, 2010

In this edition of Frank Thoughts, Frank makes the important distinction between being a brokerage customer and an investment advisory client. 

  In the financial business, the difference between a customer and a client has often been misunderstood … sometimes confused intentionally by the “high end” marketing of brokerage firms.  The term “client” seems, from a marketing viewpoint, more “upper class.” And it is.  Here’s why.  A customer is one who pays for a transaction.  When you come to a toll booth on an interstate highway, and pay a transactional cost to travel the highway, you are a customer.  It’s like going into a supermarket.  You are clearly a customer.

  A client, on the other hand, pays a fee.  It is a subtle but immense difference!  The broker, such as Goldman Sachs, has the job of making money from you; the other has the task of making money for you.  The client and fee based investment manager are both on the same side.  The investment manager’s interest and the client’s are identical; both want the client’s portfolio to increase in value.  That way the client is happy. He has more money and the investment manager has more money to fee … so he’s happy as well.  In the investment business one standard, broker’s suitability, rewards only salesmanship.  The other rewards, or penalizes, performance.  One is a product sold, the other a service earned.  One has an inherent conflict of interest, the other absolutely none! 



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