What advisors began to hear from the breakaways that had used these middleware services was, “The transition services were invaluable—we never could have transitioned our clients to our new firm so efficiently without their help. But now that we have an established RIA, and we’ve been on our own for six months to a year, we pretty much have it figured out. We’re not sure what ongoing value we are receiving at this point.” As Jeff Spears stated after shutting down Sanctuary Wealth, his platform for breakaway advisors, “Once advisors began learning how to run their own business, they stopped renewing their contracts.”

This realization by advisors led to Breakaway Advisor Movement, Version 2.0, which was featured on our blog a year ago (read more here). In addition to Sanctuary Wealth closing down, the most high profile “breakaway” from a platform provider was Pagnato Karp’s exit from Hightower to become a standalone RIA, which received press last summer.

While there are many non-publicized breakaways, (in fact most go unnoticed) and we anticipate more of these transitions to come, we are also seeing a new breakaway evolution in the industry. This new breakaway consists of some subset of junior advisors and staff looking to leave the RIA they currently work for and take their clients with them. 

We were recently made aware of such a situation, and while speaking with one of the major custodians of the RIA space, we were told this situation is not unique; they know of multiple other scenarios just like this—a subgroup of an RIA is looking to leave and set up their own RIA, in direct competition with their original firm.

We find this phenomenon to be fascinating and are dubbing it, Breakaway Advisor Movement, Version 3.0. Much like our analysis of Version 2.0, it appears that this “problem” for the industry is a direct result of the success of the RIA channel. Let me explain:

The original breakaway movement began from a belief that “there has to be a better way.”  Advisors became employed by wirehouses to learn the wealth management profession, but over time became wary of the bureaucratic nature of these large firms, and the prevalent nature of management by the lowest common denominator.