How To Go Independent

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Is Your Firm Acting Like Old Navy or Amazon?

MiscellaneousSean KernanComment

I want to give you my insightful industry lessons learned from my most recent trip to Old Navy. Yes, that’s right….Old Navy—the clothing store.

My wife and son were out of town recently, so my daughter and I were hanging out quite a bit. She's 10 and has grown quickly recently so she needed some new clothes. It's a lot quieter here without the 6-year-old, so my wife suggested we go get some clothes for my daughter.


I am not a big shopper, but I said to myself, “this will be a good way for us to bond.” So we went to Old Navy at the girls’ recommendation to get clothes for my 10-year-old. It took us a while to warm up and sort of get in our groove, but we found some clothes for her that that fit and that she seemed to really like.

We of course texted pictures to mom who's visiting family in another state, and she sent back the blessing on just about everything we sent. Great--we are happy with our selections and moving towards completion of our mission. After she came out the dressing room, I had an armful of clothes because she asked me to carry them for her. I'm dutifully following her around the store (note to Old Navy: there's nowhere to sit in your stores--and there should be).

I have this armful of clothing and a friendly saleslady approaches….she says, “Hey, would you like a bag to carry all this stuff?” Of course I do! Should have known there was no free lunch. She offers the bag and as she's opening the bag, being super helpful, she says, “Now, it looks like you're going to spend more than $100 today….” and she proceeds to go into the sales pitch for the Old Navy credit card. If you open it, you're going to save money, be healthier, better looking, etc. I reflexively give my “no thanks” answer as politely as possible. But, wait--there’s more! She moves on to the next offer which is some sort of purchase tracking and reward system. If you enroll in this system called Bright (ugh), Old Navy will track your purchases and give you free stuff for free points or a sticker or a lollipop or something that they've decided that you should deem valuable.

Hopefully, this message will not apply only to people like me, who are sort of maybe anti-rewards, but I've gotten to the point where I don't want to be in any clubs or points or accumulate stickers because I just don't want the hassle. Honestly, I'd rather pay more for simplicity. That will come up later as I kind of relate this to our business. But anyway, she was fairly polite and let me go about my business after I said, “No thank you” a couple of times—probably at least three times. And I’m not meaning to pick on Old Navy because this is rampant. But they're a good foil in this story and this just happened so they'll have to do.

You know she was fairly polite, but I moved on and my daughter knows my feelings so she kind of chuckled as I moved on. So then we were done shopping, not too long after this, and back in kind of the main part of the store as we were, you know, wrapping up our shopping. So, we collected everything we're going to buy and we head towards the checkout line.  We had to wait for a few other people to check out in front of us as it’s a Saturday afternoon so it was a fairly busy time. And we started to check out and here we go again—the exact same spiel for a credit card. "No thank you." The same mention of Bright because free points and stuff. "No thank you. 'But it's really…' No thank you." But you don't have to… "No thank you."

I was very consistent as I tried to be as polite as possible. I'm not always the most patient person especially if I'm waiting in line, but I'm trying to be a good example for my 10-year-old daughter. And again - she knows my position on clubs and points, etc. So, somehow after I don't know four or five “no thank you’s” got her to move on, and then and this is… I think it's funny in context of all the times I was asked about Bright and credit cards then they throw in… "Would you like to contribute to help endangered children?" And I said, “No thank you” because, you know, I'm not sure Old navy is fully equipped or prepared. I don't exactly trust their intentions or what they do with the money or who they partner with. I don't know. It's probably a great program and I maybe I should've contributed, but I found it very interesting that there's only one ask for the endangered children compared to the 22 asks—feels like 22 asks for the credit card and the points and the stickers and the pins and the swag and the flair and whatever other things Old Navy has to offer that's the best deal ever. So, "no thank you."

Then, it took her a while to ring up one of the items. Which again, I’m sure is not her fault. No big deal, she was perfectly pleasant and I kept my cool pretty good given my general lack of patience in these matters. So I'm thinking this is pretty funny and then she rings me up and hands us the receipt and says, “If you complete the survey, you can…” and I lost interest at this point. I had no idea if it was for something free or 5% percent off again, another sticker, or some flair. I'm not sure what she was offering, but it was pretty funny to me that she thought I would do a survey, after this interaction. She should have known I'm probably not the kind of person that's going to do a survey for Old Navy. But, anyway, I said, “Thanks” and moved on.

But, actually, right before that and right after it rang up, she says, “Now, did I forget, did you want to be enrolled in Bright?” And, I said, “No, thank you.” And, as we're walking out of the store, my daughter starts laughing because she finds this, I think, is as entertaining as I do. We had a great laugh on the walk to the car because I'm thinking, how could she not remember that? First of all, it was like 10 seconds ago. Second of all, I was very clear in my “no thanks.”

My 10-year-old thinks maybe she knew, but she was just trying to get one more ask in. And, if that's the case, then that's ridiculous. But, I'll give her the benefit of the doubt and give Old Navy the benefit of the doubt that they, hopefully, don't train people to the beat on you that many times—asking for something that I clearly do not want. I don't care how valuable it is, I don't want it. I don't want your free stickers and points, I don't Old Navy. I just don’t. I don't want to track them.

So, you know that's the way it goes. Maybe I'm an unusual Old Navy customer. I don't know. Certainly there's probably more females in there than males. But again, I'm not a real expert on the demographics of Old Navy shoppers or any retail, for that matter. Or any kind of shopping, although, I do our grocery shopping. But, that's another story.

My daughter and I both found this so entertaining that we called mom, my wife, and recounted the story. And she said, “Oh yeah, that's what they do there. You know, I hate checking out there too.” She's much more polite and patient than I am, but she was well aware of the situation. But my daughter I both thought we’ve got to tell Erica/mom this story. This is great.

So, anyway, what does that mean to you and me? Well, maybe nothing. I don't know. But as I was reflecting on it and honestly thinking, okay, what's my next episode going to be about? I thought, you know, this is kind of a microcosm for what some of these employee firms do. And here's why…

If you have an employee firm, you probably get paid multiple ways. In fact, if you go back in the archives and on the blog, I did an on an article in a podcast episode specifically focused on Edward Jones. Particularly because I worked there for three years, but it can apply to any firm that says you're not getting paid five ways. And that's because Edward Jones says we pay you five ways and they tick them off with pride, you know: pay out, partnership, profitability, bonuses, trips, free dinners, free gym memberships. I don't know what the five ways were, but you go back and listen to the episode. But you get the idea.

But what is interesting here, I guess the lesson I would take if I was if I was running Old Navy would be… If I could talk to their decision makers and say, “Look, I don't want to have to track points.” And the same goes for grocery stores and sub shops. And Starbucks kind of has this figured out, which shouldn't surprise anyone given the customer experience ratings and sort of brand they have. I do use their app to order mobile because then I don’t have to wait in line. But once it's set up and I don't remember it being particularly difficult. The app does track points that tells me, “Hey you gotta free drink. 125 points. Free drink.” And I push a button. And then the drink is free. I don't have to do anything extra for it. So, in that case, I'm okay with “points and swag and flair.” But, the point is, I'm not really going to be into that at Old Navy. If I could talk to the decision makers I would say, “Look, if you've got 15 percent of extra margin on $100 plus purchases or whatever the kick back on this Bright program is, just build that into the price. Make it easy on me.”

You know, again, if it's 4%, I'm going to say 4% of my general spending, just lower your prices by 4% and do other things to make my life not annoying when I go in there or when I check out. Now, again, this is a very minor point. It wouldn't stop me from going there especially if my wife and daughter said, “We would like to buy clothes there.” But, if it was up to me, I'd find someplace that says, “We cut the stuff out.” Again, I'm not an expert on retail by any means. I don't buy a lot of stuff, generally speaking. But the closest analogy I have that has fulfilled those kind of ideas of just cut the prices where they can be make the experience simple. I have probably two places that come to mind in the physical world.

It's Costco. So, Costco is not a very pretty place to go. It's a warehouse and they don't have a lot of stuff. I mean, they've got a relatively limited selection of items, but they've got the lowest prices. Generally speaking, they are very good prices, no frills, they don't waste money on packaging because they give you a box and they get you in and out of there as quick as they can and that's it. And guess what? You have to pay an annual membership to be a member to show up. So, to me, that's a win-win. I go in there get the best prices. A lot of people tend to agree. Costco rates well in all kinds of surveys and stock prices held up fairly well I think. So Costco is the way the world is going. It's simple. The customer experience is very positive without all this extra goofiness that Old Navy is perpetrating and other places I'm sure, too.

And then online, of course, Amazon comes to mind. So, I also pay, as do most of us, an annual membership for Prime. We pay for the privilege of buying stuff from them and a large part of that is, obviously, the customer experience is so smooth. There are some benefits for shipping and videos and other things, but the point is, it's all in one, all-inclusive membership and they don't have to nickel and dime this.

You know they do all that behind the scenes in terms of tracking purchases and what else you might like. And I get it's just harder to do that in the physical stores. I get that there are some inherent challenges, but that seems like Costco has that figured that out to a large degree.

So, how does this relate to our business? Well, again, the five ways of getting paid. Pay out, you know, the grid payout, the deferred comp, the 401-K match, the pension, the health insurance, the gym membership, the free parking, and the Christmas party. The whatever other little trinkets, you know, the plaque with your club status—all these things that your firm may “throw in” or act like they're doing you a favor on top of the grid normal payout.

To me, they're just another version of “Hey, take our card.” You know, a punch card your points…your swag…your flair. It's just another way to dress up the fact that they're not getting the best deal upfront.

In other words, Amazon and Costco are generally not doing coupons, right? They're giving you the best price that they can find and trying to make it easy on you. And Old Navy is not.  And, I'd say, an employee firm more than likely is that you're probably experiencing the Old Navy way. I saw, I think it was UBS, “We promise we're not going to change our comp plan this year.” And, apparently, that was news because I read about it here in early October as comp plans come out. So, it's kind of silly that has to be noteworthy somehow. To me, that should be “well, of course no changes” or if there are they’re either very nominal or only driven by industry forces.

Certainly the world is changing compliance wise and, in the competitive landscape, different business models pop up. I understand there's going to be changes, but the fact that UBS can come out bragging, “hey we're not changing your comp plan.” It just tells you how much time and energy you’re spending, if you're an employee firm, figuring out how bad you've been hit. Or, maybe there's a small raise in there, if you're lucky. But the point is…how does your reward program work?

Whether that's at Subway or Old Navy or Starbucks, I think that tells you a lot about it. You know, the overall experience as a customer client, etc. So, all these extra ways you're getting paid. And, you know, it's that's going to happen. It's just the way the world is…we all want recognition. So, getting a plaque is not bad. I like to think I'm not into that, but I have my little club plaque on my desk. Partially because I feel bad if I throw it away. I don't know that anyone else could use it, but if I’m the only one that sees it because the way it's facing…clients don't see it. They don't need to see it, that's not important to them—shouldn’t be.

But, my point is, I think, as we go forward, I would argue that you want to be associated with a platform that is looking and smelling and feeling a lot more like Amazon or Costco than Old Navy.  So, I'm a little bit biased here—a lot biased. But I think it's an easy argument to be made that the wire houses or other employee firms…they're destined to look and feel a lot more like Old Navy. Of course, I would advocate an independent platform either having your own RIA or being affiliated with an independent broker dealer that's providing the platform.

But, you are the store owner, so to speak. You are making decisions that are client-based. In either scenario, you're picking a platform that’s going to drive lot of the customer experience because you're in business with your employer or the platform they're going to be controlling. A lot of the backend stuff…the statements, etc. that drive your customers and your clients experience. And I should mention that there are certainly some of this in an independent space and up and down the spectrum. So, it's not perfect.

Even if you go to a pure or a RIA custodian, there are going to be different incentives that take a while to sort through. For example, the largest custodians, Fidelity, Schwab, T.D., Ameritrade have zero exchange and zero transaction costs commission ETFs that you can use. You know, buy and sell at no cost which is pretty attractive compared to, for example, to paying for those trades either your client or you pay for them “ticket charges” as we call them.

I pay $9 to buy and sell a stock or an ETF and zero sounds great. Well, obviously, that is…when you look under the hood a little bit. There's no free lunch. As an example, those ETFs tend to have a little bit higher expense ratios than the fund the ETF sponsors are paying to be on that platform to get assets, right? So, it's not that nobody's paying. It's that the client's probably paying a little bit higher expense ratio this fund. The ETF sponsor more than makes up for commissions by having a larger asset base. So, point being, there are some incentives that are driven, but they're much more around the edges and a much smaller percentage of your total if you're own independent plot type platform.

Yes, they're still there but they're just not anywhere close to the magnitude of what happens at some of these employee firms. You're going to get passed most of the revenues you get passed on to you when you decide how to invest it whether that's in marketing, staff, office, “you know what” combination of the above or how much you just put in your pocket. How much you fund your own retirement. How much you fund your employees’ retirement, if you have any that sort of thing. So you make those calls. And, again, I like I understand that some people like the prepackaged version of that, but I would say that kind of something built on an independent chassis, even if you're an employee of that organization, is going to be far better than something built on a pure employee's chassis just based on the flexibility that is inherent.

Maybe you want to plug and play with something that's using someone else's platform, but there's just a lot more margin in it and a lot more customization for you and your clients. Again, a lot of people are happy with the Old Navy type experience and happy to not have their pay out cut or happy to get a half point more for doing the same amount of business. Or happy that if they hit a certain level they get 2.5% more on the grid and you get a better match. But, I would argue that's fighting the old war.

I think the customer experience wave of the future both for your clients and for you is going to look again more like the Amazon/Costco independent type model. And if you haven't really investigated that at all, I encourage you to look around. You know, if you know anybody at other firms that are independent type firms, ask them. They will certainly tell you what they think. And I'm a big fan of finding people you know and trust and hear why they made the decisions. It may not always be the same reason you should consider a change, but I think you know our own networks are the best source of information.

And then you can talk to recruiters and sort through the information and make sure that you're thorough on the questions you ask and what you're looking for. But, that's all I've got for today. I hope this digression into my Old Navy story was somewhat useful for you. Proud as a dad to have spent that time with my daughter helping her get clothes. She feels a lot better having stuff that fits better. She's gotten very tall, all of a sudden, which is kind of crazy at 10 and a half years old. But, I guess that’s how it happens!