Financial advisors who recently went independent reported retaining an average of 86% of their clients, according to a new Schwab Advisor Services survey.
The company's "Supported Independence Study" also found that advisors contemplating such a move expected to retain about 85% of their clients.
"Clients are on board with their advisor’s vision, as well: 60% of recently independent advisors said their clients were immediately aligned with their plan, while 46% of considering advisors expect their clients to feel similarly," Schwab said in the study.
The survey, an expansive look at the mindset of advisors as they consider and actually undertake a transition to independence, found that the industry "ecosystem" now offers practitioners a wide variety of options when it comes to becoming independent.
The decisions advisors need to make, according to the survey released yesterday, are consequential: Who would the perfect client be for the new firm? What technology would be best? How will this be financed?
No matter how advisors do it, the transition to independence is an ongoing, unstoppable trend, as the number of RIA firms roughly doubled between 2000 and 2022, the survey said.
“What's changing is the path to independence, and that really is a result of this flourishing ecosystem that has sprung up to support advisors over the last 30 years,” said Jon Beatty, Schwab's chief operating officer for advisor services. “And you can see in the study that the ecosystem has evolved from the choice of starting your own firm as a single option to now a robust ecosystem that provides the join opportunity. Advisors can start if they have the entrepreneurial spirit and build their own firms. They can outsource. They can partner with providers of capabilities. Or they can join an existing RIA. This ecosystem is actually giving advisors more optionality in how they express their desire for independence in the marketplace.”
The survey, conducted earlier this year, polled 200 financial advisors. Seventy-five percent of respondents worked for an independent broker-dealer or brokerage firm and were thinking of making the transition and 25% made the transition in the last four years. In addition, interviews were held one-on-one with 10 participants (half of whom were independent and half of whom are considering it).
At the top of the findings were a set of expectations held by contemplators of independence that did not quite materialize for advisors who recently made the transition.
For example, 46% of advisors contemplating the move expected transitional knowledge to be important, 30% wanted more insight into client retention and growth, and 16% wanted to have a deeper understanding of who to establish and grow a business.
In reality, 41% of those who recently made the change said they wish they had more knowledge about running a business and 14% wished they’ve understood compliance and custodial issues better.
Other areas of difference were how time was expected to be spent and how it was actually spent. Prior to launching out, advisors thought that client retention and transition planning/client paperwork would take up the most time. Those that actually made the move found that trying to understand all the options they had in creating their own firm and getting to know their custodian’s platform took the most time.
Where those that hope to and those that have are in alignment are the top three success factors when going independent: access to clients who will drive revenue, building the right firm culture and the overall size of the existing book of business.
Regardless, the Schwab survey said, all advisors have to make the same initial decision: to strike out on one’s own or join an existing firm.
For those that choose the former, there are three sub-options—create an RIA with all operations in-house, create an RIA but outsource some tasks (like admin) or share the creation of the RIA with an equity partner. For those that join an existing firm, there are two options—join an existing RIA as a partner or employee, or affiliate with an existing RIA but keep their book of business.
When contemplating going independent, 44% of advisors think they’ll join another firm and 31% believe they’ll start their own RIA, leaving 24% who are unsure. By contrast, it’s an even split between the 50% of recent transitions who went out on their own and the 50% who joined an existing firm.
“We have to look at the conclusion of the study and really appreciate that advisors are very satisfied with the decisions that they've made to go independent. Seventy-nine percent would make the same decision again. Seventy-six percent say they're happier as an RIA than when they were an employee. And 69% said that they wish I had done it sooner,” Beatty said. “I think these are powerful representations.”