A growing number of advisors at major brokerage firms are considering taking the leap to become independent registered investment advisors, citing higher income, more freedom and time to interact with clients as their main motivation, according to a new survey released today by Charles Schwab & Co.
An estimated 76 percent of advisors queried say they expect the exodus of advisors from the wirehouses to the independent channel to increase. An estimated 51 percent of respondents said the idea of becoming an independent advisor appeals to them.
And younger advisors are even more likely to make the switch, according to the report. Advisors under 40 years old expressed a strong interest to go independent, with 65 percent giving the idea a thumbs up, compared to only 43 percent of respondents who were 40 or older.
"The young advisors may have a better appetite for change -- they're more comfortable with change," says Tim Oden, senior managing director of business development at Schwab Advisor Services. "And at 40, there's been a lot less time for these people to feel loyal to the current [wirehouse] brand. They're realizing that just because you work for a large wirehouse that doesn't provide you with an absolute guarantee that you're protected in an economic downturn."
The top three benefits cited by advisors who find the idea of becoming an RIA appealing include potential for larger income (56 percent), freedom of running their own business (52 percent) and more time to focus on client service and communications (51 percent).
The survey was conducted by San Francisco-based independent research firm Koski Research, and it queried more than 200 financial advisors in December. Those surveyed work at major full-service firms and manage a minimum of $10 million in assets. An estimated 64 percent of the advisors in the survey have more than 10 years of investment advisory experience.
San Francisco-based Charles Schwab Corp. is a financial service provider that operates more than 300 offices and 8.6 million client brokerage accounts, 1.5 million corporate retirement plan participants, 787,000 banking accounts, and $1.74 trillion in client assets as of Jan. 31, 2012.
Nearly 90 percent of the advisors surveyed say they're more committed to serving their clients than serving their firms. While most advisors view the ability to place a higher priority on client needs and to offer a broader set of investment products and services as potential benefits in joining or starting an independent RIA firm, advisors under 40 are even more likely to see these as benefits.
Given the recent market climate, many advisors surveyed say that they are fighting an uphill battle to meet client goals, with 87 percent saying it's more difficult to meet clients' financial goals today versus the past five years. And they don't expect it to get easier: 53 percent of those surveyed said meeting clients' financial goals would be more difficult in 2012 than in 2011.
Advisors under 40 feel more strongly than their over-40 peers that increased challenges include the pressures from their current firm's management to grow a book of business, the loss of assets to other firms and advisors, and too much focus on presenting proprietary-specific products at their current firm.
Nearly four-fifths (79 percent) of those who find the idea of becoming an RIA appealing said that they are explaining more to their clients about the publicity connected with Wall Street firms.
"The growth of the independent model in recent years is attracting more individuals and teams who are exploring if independence could be right for them, whether that means joining an existing firm or starting their own," Oden said.
Going the independent route may also provide advisors more managerial elbow room, young advisors say.
"Let's say I'm young and more technically comfortable, so I'm in tune with social media," Oden said. "I want to be able to market myself and my services and be in some of these new channels, but my current employer is less comfortable with that, and in fact, restricts that. So they start thinking more and more, how I want to build my business is not supported within the current architecture. This new independence gives them an avenue to have more control over that."
--Jim McConville