End of an era letter for investment advisors – 02/19/2023 – Marcos de Vasconcellos

In a rather ill-humored letter, which circulated last week, the founder of XP, Guilherme Benchimol, decided to demand more effort from the investment advisors who work for the company.

The email was leaked to the press the day before XP reported a drop in net profit and saw its shares drop more than 20% in just two days.

Benchimol criticizes the work of professionals (saying, for example, that some great leaders have become bureaucrats), while at the same time stating that complaining “was never the best way to overcome any challenge”.

Apart from the outburst, a point in the letter draws attention to the cake recipe of what a good office for independent investment agents (AAIs) would look like, in Benchimol’s view. Only four things would matter: more customers, more AUM, a healthy ROA, and high NPS.

The alphabet soup is a little confusing, let’s explain: AUM is the acronym for the money of customers under management of offices (Asset Under Management, in English); ROA is how much revenue is made with these assets (Return On Asset); NPS is the measurement of customer satisfaction (Net Promoter Score).

Translating: the ideal would be to capture more customers and more money, make a healthy income and keep customers happy.

So far, these numbers are measured by the brokerage firms that hire investment advisory firms. That is: how many clients and how much money the advisor brought to that financial institution.

A big change for this investment market, however, was announced last week. And Benchimol’s letter has a chance of becoming a historical record of the end of an era for investors.

On the 14th, the CVM (Securities and Exchange Commission), which regulates the financial market, published a new resolution regulating the activity of investment advisors, which will begin to take effect in June.

Among the significant changes is the permission for advisors to provide services to more than one financial institution. Although many have an exclusive contract with brokers, increased competition will force the market to offer better conditions to customers.

Another striking point is that the offices may have partners who are not independent agents. In other words: new players interested in the area will have an open path to invest in the creation or expansion of investment offices.

In addition, there will be a greater requirement for transparency in relation to the commissioning of advisors and institutions, as well as permission for trading in various other financial products.

Increasing competition and transparency, and allowing investment firms to become real companies, is a decisive step towards the professionalization of the investment market in Brazil. Good news for investors and bad news for those who are attached to the models of the (almost) past.

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