Mar 24, 2023 - Unsung Money Mentors: The Legacy Dan Wheeler Left Us
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 recently, on February 15, 2023, at age 72. To honor his memory, we want to share with you the larger-than-life butterfly effect he had on our life and yours.
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.
But perhaps it was 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 provider could earn their keep, or sometimes, even keep their jobs.
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. 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 a nascent 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 our perspective, it’s also much easier for us to provide the kind of fairly priced, fiduciary advice we are proud to provide.
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.
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.