Observers who have been around the wealth management space for any substantial period have seen the breakaway trend in full living color, and they know the spark that set it off: The Great Recession.

In every great movement, there’s a catalyst that stirs the masses from rest to action. Over the past decade in the wealth management industry, there has been a great migration of financial advisors departing big-name financial institutions to join the independent RIA movement. The early breakaway pioneers were motivated by a perception—one backed by reality—that when the chips were down and when the sky seemed to be falling during the mortgage crisis, the financial institutions they worked for could do little to help.

More than a decade later, financial advisors are witnessing a new catalyst. The global pandemic has ignited new questions, primarily whether employed advisors are getting their money’s worth from the institutions they work for. In 2020 and 2021, banks and other institutions lost legions of advisors, and RIAs were the net beneficiaries. RIAs have continued to gain the most headcount of any channel, a trend that’s likely to continue.

Advisors questioning the wirehouse/bank model owe it to themselves to do their homework on what the independent RIA channel offers. Though the economics matter, they’re not the only factor to consider when mulling a breakaway move.

The wirehouses offer advisors a straightforward value proposition – in exchange for about 60% of their revenue, advisors receive all the technology, back- and middle-office support, infrastructure, and other tools they need to serve clients and run thriving practices.

The pandemic, which compelled advisors and clients alike to interact remotely from home, irrevocably upended this quid pro quo. After all, the type of support that wirehouses provide, such as compliance, technology and administration, typically are delivered by their local branch offices.

But with virtually everyone working from home, all the “stained wood,” expensive office furniture, and decked-out conference rooms that previously had been expected in this industry no longer mattered. At the height of the pandemic, advisors had to continue to serve clients in the best way possible, optimizing remote communications and maximizing their use of investment management and financial planning tools. In many cases, they were able to provide an even better experience than before and build even deeper relationships.

The bottom line: Advisors have started realizing that the value they receive from wirehouses in exchange for their override isn’t worth the cost. In addition, the custodial services, technology and product shelf can easily be replaced.

Ultimately, going independent and taking one’s practice private allows a very customized approach without giving up 60% of the advisor’s revenue.  

Wirehouse firms enjoy touting the investments they have made in building out highly sophisticated, tightly integrated technology platforms. But if you look under the hood, it’s a different story.

Like most sprawling organizations, many wirehouses are working through the challenge of integrating legacy technology with newer add-ons and determining how to incorporate third-party tools or platforms. Additionally, many of these firms have long histories of ownership changes, M&A-based transitions and complex organizational reshufflings, so they are working with technologies that literally are “legacies” of their past incarnations.

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