Look out, wirehouses, independents are now better equipped than ever to take your advisory business.
And financial professionals have a clearer path to becoming independent because they can now obtain most of the same services, the economies of scale and products and do it without pressure to sell or advise in a one-size fits all way.
Those were some of the themes of a Friday morning roundtable sponsored by Fidelity Institutional Wealth Services, which sells RIA, custody and clearing services to reps and firms that are independent or considering the option.
“We believe we can change the industry if we can have the advisor focus on that touch point with the client, helping them to think differently about how they’re interacting and what their value proposition is,” says Jason Del Col, senior vice president, advisory services for United Capital Financial Advisors. Col says his goal is to help professionals understand the difference between offering “advice and those just offering investment solutions.”
The event, attended by independent advisors and advisory firm officials, reviewed the various aspects of advisors making the transition from national full-service firms to the different forms of independent advisory work.
Why are veteran wirehouse reps looking for the exit doors?
Part of it is the legal and regulatory debate over the responsibilities of the advisor, roundtable participants said.
“Fiduciary-minded advisors at wirehouses are finding the conflicts of interest to be untenable,” according to Mike Papedis, executive vice president of HighTower Experience Group. “In our view, the fiduciary model is best for serving clients of any asset size.” He adds that numerous mergers and acquisitions at big firms are also leading advisors to think about going out on their own.
Alan Harter, who left Morgan Stanley some two years ago to start Pactolus Private Wealth Management, complained that previously he was greatly limited in the advice he could provide because of legal prohibitions.
“Now we can focus on operating assets. We can focus on building an active community,” said Harter, whose firm works with family owned businesses. He added that now he can be closer to clients and offer more effective advice. During the transition, it took about nine months to restore the firm’s revenues to the same levels, he said.
There are several different models of offering independent advisory services, according to Fidelity, depending on how many functions one wants to keep in house. For instance, one can establish one’s own firm, keeping control of the day-to-day aspects of running the business, but outsourcing back-office or investment-management functions to a partner.
Another way of achieving independence, Fidelity said, is to join an existing independent broker-dealer. With this option, one can manage and own a practice, but with access to the infrastructure and support needed to provide service to clients using a commission or a fee model.
One reason it is easier to walk away from a wirehouse is technology. Alois Pirker, research director at industry consultant Aite Group, said the technology support levels between national firms and independents have become “similar.”
HighTower’s Papedis added his firm is benefiting from the independent trend and will broaden advisor access to its networkand alliance channels.
“These channels allow advisors to have a close affiliation with HighTower, sharing our brands and services, but support a
greater degree of independence for those business practices. And the alliance is supporting advisors’ legal autonomy and distinct brands, yet availing them of size and scale,” he added.
Still, does anyone fail at going independent?
Yes, they sometimes do. Several panelists said this path is not suited for someone who has little business and few relationships, but thinks that independence will mean an automatic jump in business. Participants said restructuring a business as an independent one can take six months to a year. Still, they agreed that advisors leaving wirehouses to go independent is now an unstoppable trend.
Advisors who leave wirehouses, added Mike Durbin, president of Fidelity Institutional Wealth Services, “are not running away from something. They’re running toward the future. This all about a better place to serve the clients.”