A traditional brokerage firm is a business, just like any other business. Instead of having an inventory of widgets, a brokerage firm has a large inventory of in-house financial products. These products may be mutual funds, annuities, or even large blocks of individual securities that the brokerage firm may have purchased. As with any business, a brokerage firm hires salespeople (called stockbrokers) to sell their inventory (in-house products) to their customers (clients). A stockbroker at a particular firm may be very limited in the investment options that he can offer to his clients. Worse yet, stockbrokers tend to be compensated based on product commissions. The most successful stockbrokers are those who are the best salespeople. That is, they are the ones who are most successful at convincing their clients to buy and sell products. Because of this, a stockbroker has no incentive to consider whether or not a particular transaction is appropriate for his client. This type of fee arrangement causes an inherent conflict of interest between the goals of the broker and the goals of the client.

Because intelligent investors recognize this conflict of interest, some of the large brokerage houses have begun shifting to a fee-only compensation structure using outside money managers through "wrap accounts". The idea is to provide a team approach by utilizing a group of different money managers with different investment styles. However, none of these wrap account money managers ever have any direct interaction with the client or with each other. Two or three of these money managers may very well purchase identical stocks for their portion of the overall portfolio. This can lead to heavily concentrated positions and un-diversified portfolios. Worse still, full service brokers typically charge 2% - 3% of assets under management for this service.