One investment industry veteran's take on Eliot Spitzer's move against UBS. Jamie Waller is CEO of Family Wealth Report. He has been an entrepreneur in the investment-management industry for over 20 years.

Why is New York State Attorney General and Governor-elect Eliot Spitzer attacking fee-based accounts, the investment industry's most transparent and least abused product -- and just maybe the best thing to happen to Wall Street in a good long while?

With his suit against UBS, Spitzer is attempting to tell Americans how to value and price the products and services they consume. In a Spitzer world, the prosecutors will set prices for services, information, advice and consulting. The attack on the flat-fee account appears to ignore the billion-dollar investment that is built into the packaging of this product. That kind of thinking is enough to make Joseph Schumpeter not merely spin in his grave; it's enough to catapult him from his casket altogether. It's "creative destruction" not by market-based competition but by government fiat.

Look out, New York

Perhaps Starbucks will be Spitzer's next target.

The fee-based or "wrap" account is a great vehicle for getting advisors and investors working together. Though there are several different flavors of flat-fee accounts, the one Spitzer is focused on now in is popularly known as the "broker-wrap" account. In these accounts the advisor charges a flat fee for investing -- not trading -- the investor's assets.

Broker-wrap accounts are typically not discretionary accounts; if they are then they tend to have significant oversight and management from headquarters. The broker-wrap account should not be confused with the separately managed account, or SMA, which taps into an outside money manager to invest a portfolio in a discretionary account. In the late 1990s SMAs began to pull in significantly more assets than other fee-based products such as the broker wrap, the mutual-fund wrap and a variety of other products, including the exchange-traded-fund, or ETF, wrap.

As with any financial product, the broker wrap may not be perfect for everyone. Many savvy investors purchase different managed products to accomplish different objectives. Just as consumers purchase mortgages and seek low interest-bearing credit cards, the investors and the markets can effectively migrate these products and programs to increasingly add value and deliver results.

Any product can be sold incorrectly. If the Securities and Exchange Commission or the New York AG's office knows of instances where advisors failed to act in good faith or deliberately breached the myriad of securities laws in effect, those advisors should be punished appropriately.

Long lonely walk

But bringing suit against UBS to reform product development and delivery is an abuse of power -- and a clear-cut case of prosecutorial malpractice. If Spitzer thinks he can force Wall Street and American investors to live in some mysterious perfect world, he certainly has the platform to introduce appropriate legislation in his new job as New York's governor.

Today the investment advisor remains under-valued and under-appreciated. Each day hundreds of thousands of them work to augment the investments and savings of their clients. They aren't just "stock brokers" anymore. Regulations, market pressures and common sense have made fee-based practitioners of many of them. What's truly noteworthy about the fee based accounts is the relative lack of abuse over the past ten years.

In fee-based business, advisors have a wide selection of tools: SMAs, mutual-fund wraps, discretionary broker-as-manager accounts, non-discretionary broker-wrap accounts and a slew of newer products like multiple-discipline accounts and unified managed accounts. The net effect of this product proliferation is to give investors access to great products that they can understand and appreciate. And it can eliminate the potential for conflict that arises when commissions are paid for trading activity.

Studies suggest that the two most powerful influences on long-term investment performance are asset allocation and time. Wall Street spends billions researching stock ideas and recommending asset allocations that advisors toil with investors to customize to the unique needs of the individual investor. Americans insist on unique and custom solutions to their retirement and lifestyle goals.

At times, the "reductionism" associated with efficient markets obscures the need for professional hand-holding and counsel when people start that long lonely walk out toward the efficient frontier. Perhaps regulators should spend an afternoon with some real Americans who are trying to figure out how they will have enough money to retire. -FWR

.