13 Feb A Love Letter For Dan Wheeler

Are you familiar with the butterfly effect, or how small actions can have big, often unexpected ripple effects? The classic example (and its name source) is a butterfly flapping its wings in one locale altering the air pressure just enough to generate a tornado halfway around the world.

Next question: Have you ever heard of Dan Wheeler? Unless you are an independent, fee-only financial advisor, probably not. But despite his relative anonymity, Daniel Webster Wheeler, Jr. is acclaimed in our community as someone who changed the advisory profession for the better.

Sadly, Wheeler passed away on February 15, 2023, at age 72. His work changed my career and improved the lives of many clients, so I’d like to share with you the larger-than-life butterfly effect he had on our lives.

An Unlikely Champion for Individual Investors

Born in East St. Louis, serving as a Vietnam War Marine, bouncing among various accounting, philanthropic, and financial roles (including being comptroller for a Saudi Arabian arms dealer!), landing as a broker at Merrill Lynch in the 1980s … Wheeler might seem like an unlikely hero for individual investors.

I think it was likely his restless nature that made Wheeler perfect for the role.

Pre-Wheeler, the financial industry fed almost exclusively on commissions. From an investor’s perspective, any advice you received would seem free of charge. But behind the scenes, your “advisor” was earning their keep from commissions paid by third-party providers who stood to benefit from your transactions, including broker/dealers, bankers, insurance companies, and fund managers. Your advisor was also usually employed by one of these same providers, beholden to their sales quotas and other profit-generating priorities.

It’s easy to imagine how rife this model could be with conflicts of interest to trade, trade, trade, and to recommend investments that would enhance a firm’s bottom line, whether or not they made best sense for you. After all, earning commissions and chasing incentives was the only way a financial advisor could earn their keep, or sometimes, even keep their jobs. I worked in this structure for the first three years of my career I can confirm: it is soul-crushing for everyone involved.

Reimagining Investment Advice

In the late 1980s, Wheeler characteristically called BS on the financial industry’s inherently flawed compensation model. He’d seen the sausage-making, grown disgusted by what it took to “succeed,” and envisioned a new, more meaningful way to deliver solid investment advice to investors who were otherwise too often being thrown to the wolves.

Even then, Wheeler was not alone in his beliefs. But he became among the first to act on them. At age 40, in a brash, virtually unheard-of move, Wheeler quit Merrill Lynch and opened a solo firm. In lieu of commissions, he charged a transparent fee, which clients paid directly to him for his independent advice. He refused to accept any forms of third-party compensation that might influence his recommendations.

The independent, fee-only advisory model was born (hallelujah!). Wheeler blazed a new path, in which advisors were free to structure and manage clients’ portfolios, without being beholden to opaque sales incentives, and third-party conflicts of interest.

An Alliance with Evidence-Based Investing

Wheeler also turned to fellow thought leaders to help him implement his vision. As described in this homage by Financial Times Editor Robin Wigglesworth, Wheeler’s next epiphany arrived when “he discovered the works of … Gene Fama, the University of Chicago professor and father of the efficient markets hypothesis. It all suddenly makes sense, Wheeler thought.”

In another butterfly moment, Wheeler crossed paths with emerging Dimensional Fund Advisors (with Fama sitting on Dimensional’s board). In its early days, Dimensional was providing no-load/no-commission funds that investors could use to efficiently and effectively capture available dimensions of market returns at lower costs compared to most retail fund equivalents. They grounded their strategies in evidence-based insights provided by Fama and other Nobel laureate financial economists. This approach was also virtually unheard of at the time. 

Together, they agreed it was high time for advisors, fund managers, and investors to all sit on the same side of the table—the investor’s side, that is. But there was a wrinkle. Dimensional was serving institutional investors only.

Once again, Wheeler led the charge. He convinced Dimensional they could—and should—create a legion of like-minded, independent advisors to bring evidence-based investing to the world. Dimensional’s co-CEO Dave Butler describes in his post, “Remembering Dan Wheeler”:

“Dan was convinced that there were other financial advisors who would share his enthusiasm for marrying independent and conflict-free financial advice with cost-effective investment strategies grounded in a scientific approach. He just didn’t know who they were, and they didn’t know about Dimensional. With a larger-than-life personality and enough zeal to overcome the odds, he made this vision a reality.”

In 1989, Wheeler joined Dimensional to build up its advisor channel. He retired in 2011 as its director of global financial advisor services. His business strategy had happened, just as he’d described it.

Advocating for a Fee-Only Future

Today, thanks to Wheeler and other early advocates like him, it’s much easier for investors like you to find an independent, fee-only advisor like us. From my perspective, it’s also much easier for us to provide the kind of fairly priced, fiduciary advice we are proud to provide. Our interest are now aligned – when you win, we win. I cannot imagine  a better structure to do this work.

Unfortunately, it also remains all too easy for consumers to end up being swayed by commission-based advice, which is still widely available as well. If you are investing in something for free, or it’s not clear to you what the cost is, you may likely in a commission relationship with your “advisor.”

We’ll continue to work on that. We’ll continue to beat Wheeler’s drum, insisting, as he did, that investors deserve far better than that. One thing is clear: Were it not for Wheeler’s early effect on investment advice as we know it, our voice would not reverberate nearly as loudly as it now does. Wherever he is now, the irascible Dan Wheeler has earned his wings.

Information is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products, or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. The information presented herein may contain links to third party websites with which we have no affiliation. A link to any third-party website does not mean that we endorse it, or the quality or accuracy of the information presented on it.

The commentary in this post (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of Angela Wright, an Investment Adviser Representative of Gemmer Asset Management LLC (“GAM”) and should not be regarded as the views of GAM, or a description of advisory services provided by GAM or performance returns of any GAM client.  References to securities or market-related performance data are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.