Wall Street Conflicts were the Catalyst to Form Innovest

By Richard Todd and Wendy Dominguez

It should be no secret that many of the investment managers, funds, and products that are utilized by advisors at Wall Street banks are also clients of that same Wall Street firm. These firms can be active clients on the proprietary trading desk, are buying research, are sub-advisors to their funds, and are banking and lending clients, just to name a few. The passing of the Dodd-Frank Act, which was signed into law in 2010, allows banks to be in nearly all lines on financial services. Consequently, conflicts of interest are very rampant on Wall Street.

Conflicts of interest were also very prevalent in 1996 and were the catalyst for the founding of Innovest as an independent, fee-only firm with no conflicts of interest.

Working for a regional Wall Street bank at the time, our unit was providing investment consulting to a large union pension plan. Our advice to the client, based on our research, was to terminate a poorly performing investment manager that also had qualitative problems. As a consequence, the president of our Wall Street bank informed us that the manager that we were terminating from the portfolio on behalf of the pension plan client, was the single largest trading client of our Wall Street employer. He encouraged us to forgo our fiduciary responsibility to the client and retain that manager for the sake of the shareholders.

Without hesitation, we continued with the manager termination but the response by the firm certainly turned our stomachs. We concluded that leaving the Wall Street employer was the best action for our clients and our team. Our view was that being compromised was not fair to our clients and was in conflict with our values.

Hence, Innovest was created! We negotiated an amicable separation with the Wall Street firm and started a fee-only firm with around 25 clients with assets of just over $250 million, 5 employees, and the need to grow to survive. We were convinced that being a fiduciary to our clients was our only route.

Our 27 years have been terrific thanks to our wonderful clients and great Innovest team. Today, we have over 300 clients with assets of over $35 billion and 60 employees. We are committed to our original fee-only and fiduciary structure which is the only wat that we can truly commit to our Innovest culture of stewardship.