“Those first couple of years, we were really investing in infrastructure and opening up locations,” Shapiro says. “We were recruiting and developing a process for transitioning advisors. In year three we went profitable.”
In 2013, Stratos reported $41.6 million in revenue, a 941 percent increase over 2012.
In seven years, Stratos has grown to become one of LPL’s largest affiliates, adding a new affiliated office once a month on average, mostly breakaways from wirehouse firms.
“Culturally, they still want to share ideas and be part of something bigger than themselves,” Shapiro says. “There’s never a particular wirehouse that we’re preying on or targeting, but at some point they have disenchanted their advisor force and that’s why we’ve had an opportunity.”
Stratos’ growth comes from concentrating on disillusioned breakaways.
“When approaching firms, we take more of a consultative approach than a sales approach,” Shapiro says. “We were in their shoes just six years ago, so it becomes a business planning discussion, a peer-to-peer relationship.”
The strategy continues to work. Earlier this year, Hudson, Ohio-based Ellsworth Private Wealth Management joined Stratos, bringing approximately $200 million in client assets with it. Shortly thereafter, Rancho Bernardo, Calif.-based advisor Hayley Higgins brought $100 million in client assets over.
In August, Chad Tom and Wayne Wycoff broke away from Huntington National Bank to form a Zanesville, Ohio-based Stratos-affiliate. Also in August, a $220 million team based in Prescott, Ariz., joined Stratos from Wells Fargo Advisor.
This continues a trend from 2014, when Stratos added 27 advisors to its network.
The south and southwest have been especially fertile areas for growth. In 2014, Stratos also opened up offices in Gulfport, Miss.; Scotssdale, Ariz.; Carmel Valley, Calif.; New Orleans; Conway, Ark.; San Diego; and Baton Rouge, La.
These advisors aren’t coming to Stratos for the money — the firm offers advisors lower payouts than other LPL-affiiated mega-RIAs. Instead, breakaways are attracted to Stratos because it eases the burdens of starting their own businesses. Large hybrid RIAs like Stratos allow breakaway representatives a "soft landing" in their transition from the wirehouse setting.
“Since 2008 or 2009, most of these advisors have wanted to take their practices private, or at least go independent, but they didn’t want to have to do the 30-plus things necessary to make that happen,” Shapiro says
New firms typically choose one of two models offered by Stratos. In the first, Stratos provides all the major resources that a wirehouse would to a representative, allowing a more seamless transition for reps nervous about going it alone.
“We have five full-time people on our transition team,” Shapiro says. “Advisors don’t have to come in and learn new technology and repaper their own practice. We take transition, a process that normally takes four to six months, and dial it in to 60 to 90 days.”
In the second model, advisors find and pay for all the resources needed to start-up their businesses themselves.
“We’ve transitioned 200 advisors over the past five to six years,” Shapiro says. “We have made all the mistakes that can be made, but we have developed processes and infrastructure.”