The number of advisor teams going independent that use Charles Schwab as their custodian has jumped 54% in first six months of this year compared with the same period last year, the company has announced.
Seventy-four advisor teams, with Schwab as their custodian, went independent this year as of June 30, up from 48 teams who made the change in the first six months of 2008, Schwab said yesterday.
A persistent undercurrent of uncertainty at the full-service wirehouse brokerage firms has been a game-changer for many financial advisors this year, prompting record moves to the independent registered investment advisor (RIA) channel, Schwab said.
"Advisors overwhelmingly have told us they believe the independent RIA channel is the best way to provide better service to their clients as well as achieve the potential for greater long-term financial success for themselves," said Barnaby Grist, managing director of strategic business development for Schwab Advisor Services. "In fact, 98% of recently independent advisors surveyed tell us they would do it again."
Schwab also announced that it has released a whitepaper, A Case for Starting or Joining a Registered Investment Advisory (RIA) Firm. The report includes a worksheet that allows advisors to compare the financials of starting an independent advisory firm versus accepting a forgivable loan from a wirehouse, bank or similar institution. The report says that owners of top RIA firms can earn 69% to 73% net compensation, or owner's income plus profit and less the expenses for non-owner professional salaries. The average RIA owner typically earns 60% to 65% percent net compensation. The high net compensation and equity for the independent firm owner compares favorably to the payout structure offered by traditional wirehouses, banks and independent broker dealers, particularly over the long term, Schwab says.
According to Schwab and industry data, buyers of RIAs typically value such firms between six and 10 times cash flow, or between 1.8 and 3.5 times revenues, with the largest multiples typically applied to firms with at least $500 million of fee-based assets.