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Breaking away from wirehouses has never been easy. But the leap of faith to independence demands a lot more work for advisors than it did even a few years ago.
I don’t say this to discourage breakaways. It’s not possible to turn back the clock on the mass exodus toward the RIA channel even if we wanted to. Years of economic volatility and a pandemic have not dislodged the desire of advisors to strike out on their own. In fact, Cerulli Associates predicts independent and hybrid-channel RIAs will capture nearly a third of the intermediary asset market share by 2027. The appeal of running one's own business, the flexibility of organizational structures, and the higher payout percentages compared to wirehouses and IBDs are all hard to ignore.
But a breakaway in 2024 needs to keep a lot more plates spinning than 10 or even 5 years ago. The drive to go independent mostly came from ditching the conflict-laden, commission-based model at wirehouses. The value proposition to clients was, “I'll charge you a fee, not a commission based on specific products, and I’ll do wonders with your investments.”
But investors want more than just investment management. Robos have long since made that a commodity. Even financial planning, as complex and dynamic as it is, has become table stakes for modern investors. People want family office-style service: college planning, insurance, risk, tax planning, all in a cohesive experience. It’s a tall order for a sole practitioner to be all things to all people.
Advisor tech promises solutions for a lot of these problems. But it demands a learning curve from advisors, just like anything else. Even the best financial planning software can be difficult to use without experience. Just because you can buy a car doesn’t mean you know how to drive it.
Regulators expect more out of advisors, too. I hear and see very regularly from the SEC that it wants advisors to expand their specialty knowledge. Now you have to be an information security specialist, an expert on marketing and advertising regulations, and a dozen other things, just as a consequence of the growing complexity of the work. Small offices can expect to take 10 hours a week, if not more, to check all the necessary boxes alongside their compliance consultant or attorney.
The one-two punch of freedom and support
This is a big part of why partnered independence models have gained traction in recent years. RIAs position themselves as landing pads. They offer the freedom associated with the RIA channel, combined with the specialized offerings that investors expect and the operational support necessary to manage these demands without completely burning out.
But if the name of the game is supporting services and managing complexity… wouldn’t wirehouses still have the upper hand? For all the ground they have ceded to RIAs, the heavyweights still have immense war chests of wealth they have already deployed to broaden their services and modernize their client experiences.
To some extent, the wirehouses have become victims of their own success. Or victims of their own scale, to put it another way.
Independence partners shine when they’re able to do the heavy lifting necessary to maximize the time advisors spend with clients and prospects. That requires a healthy relationship between a central team working behind the scenes and the local advisors who are meeting clients face-to-face. And that’s hard to get when you have conflicting demands at a large corporation. The sheer scale of the wirehouse giants means they cannot give advisors individual attention. They design policies that work for the lowest common denominator of their employees.
By contrast, breakaways want to establish a boutique, hands-on experience in which they can give more of their time to their clients and prospects. The growth of partnered independence models is a response to this demand. As starting an independent practice becomes more of a balancing act, more and more breakaways will look for partners big enough to support their work, but small enough to treat them like individuals and entrepreneurs.
Rob Gorman is COO and founding partner at Apollon Wealth Management.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.