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There’s been an uptick in the number of advisors leaving wirehouses for broker-dealers and registered investment advisors in recent years. According to Cerulli, RIAs have grown as they continue to secure market share from wirehouses. In fact, for the first time the market share for managed accounts held by wirehouses dropped to below 50% in 2017, from a high of 71% in 2001.
That said, breaking into the RIA channel comes with its own set of challenges. By going independent, advisors must tackle back-office bureaucracy and client onboarding procedures that were previously managed by the wirehouse. These activities can often be time consuming and distract from important client-facing activities. Moreover, advisors may become overwhelmed with the scope of services they’re now able to provide.
For advisors making the big move – or for those just considering it – here are four tips for a smoother transition:
1. Choose your brand
Once advisors strike out on their own, it can be tempting to be all things to all people. That can be a big mistake. I’ve seen many advisors stumble out of the gate by not clearly communicating which services they offer.
For example, will you offer estate planning? How about tax prep or portfolio management? Can clients buy individual stocks from you, or do you take a straight fee for investment advisory services?
Although your service offerings may evolve over time, it’s important to be consistent with your messaging early on. That not only avoids the risk of disappointing clients by taking on more than you can handle, but also allows you to establish a niche.
2. Consider utilizing third-party specialists
So, you’ve narrowed your focus and have decided on your niche. What about what you don’t do? If you’re not fond of sending clients to competitors, consider making use of third-party practitioners.
For example, you may have decided to take the plunge into portfolio management. You’ve preached the benefits of diversification but don’t want to make your mark as an international equities manager or a fixed income practitioner delivering 2% to 3% returns.
Fortunately, there are plenty of third-party money managers that can take on those portions of your client portfolios. Using third-party specialists allows you to farm out activities you’d rather avoid, while still maintaining a unique client experience.
3. Consider model-based trading
Using outside specialists doesn’t mean you have to outsource everything, of course. As your newly established practice evolves, you may find you’re relying too heavily on separately managed accounts to accommodate clients’ desired strategies, when many seek similar outcomes and have similar risk profiles.
In cases like these, map out what each client holds and establish a model-based portfolio so that you can manage multiple accounts at the model level. This provides a cleaner experience for your clients, while allowing you to build an efficient and scalable practice.
I recently worked with an advisor whose clients routinely used three to six outside RIAs to accommodate disparate investment strategies. He was eventually able to fold most of these strategies into a single account for each client – eliminating multiple account statements while achieving 99% client retention during the transition.
4. Enlist a digital technology partner
That gets us to technology, which will be an important part of your transition from wirehouse to RIA. Technology platforms can automate time-consuming back-office tasks and provide sophisticated modeling, trading, and reporting capabilities – plus much more.
But are you prepared to be a technologist? Did you get into this business to help people achieve their financial dreams or to learn data encryption, APIs, and secure file transfer protocols?
Unless you’re a technologist at heart, leave that stuff to the experts by partnering with an outside technology vendor. To be successful in making the leap from a wirehouse, you’ll need to stay relevant by surrounding yourself with partners that live and breathe the technology space.
You can do this
The road to independence can be bumpy, but advisors who clearly set parameters, practice what they’re best at, and effectively leverage technology and outside expertise stand a better chance of setting themselves up for success and delivering a satisfying client experience.
Mike Lover is vice president of strategic business development at E*TRADE Advisor Services.
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