Hasn’t it been fun over the last couple of years to observe the debate about the Death of the Wirehouse? Like the Loch Ness Monster, the end of the great beast has been alternatingly claimed and refuted ad nauseum by the media and “industry experts.”
What? You didn't think we noticed?
Based on all of this noise, you might almost think that one morning we’ll wake up and the wirehouses will all just be… gone. In fact, when faced with the bank earnings news of last week, the great preponderance of assets still safely ensconced in their tall towers and the wildly large population of advisors still willing to put up with their service model, asking when or where the death of the wirehouse will occur is precisely the wrong question.
And if you look at the terrain today as supported by those earnings announcements, it would be easy to conclude that while the woods may be filling with Davids in the form of independent RIA firms ready to take on the wirehouse Goliath, the giant’s not only not dead, he’s
getting stronger. After chowing down on cheap money and rising markets he appears wholly unimpressed with the threat the many Davids may pose. It's still true, as industry experts like Chip Roame of Tiburon Strategic Advisors point out, wirehouses still manage the bulk of client assets: $5 trillion in assets vs. $60 billion for the independent channel.
But really, who cares? One of the great things about being independent is that I don’t have to give a damn about much that has to do with the wirehouses. I’m not a shareholder, I’m not in management, I’m not giving up 60% in the hope they do the right thing with it. I don’t have to worry about their quarterly numbers or what they need to do to avoid missing them. If Jamie Dimon starts another fire in his kitchen, I won’t get smoke inhalation. We live on the same street, not in the same house.
So here’s the bottom line about the question regarding the relative mortality of the wirehouses: It’s the wrong question. The right question is, at this point, what can stop the rise of the independent RIA?
The answer seems to be, nothing. The independent RIA space has sufficient critical mass and a superior model on its side, and this will keep the growth strong regardless of how well or poorly the wirehouses fare in the future.
When considering that future, consider these facts:
- Tyler Cloherty, associate director at Cerulli Associates said in a statement "The growth of the RIA and dually registered channels is likely to continue to accelerate due to advisor movement and client choice."
- Levaux notes that "in 2010, there was about $1.2 trillion in RIA assets for client accounts managed by roughly 27,930 RIAs. In 2011, that figure rose to about $1.4 trillion and 28,715, respectively. RIA-channel growth is outpacing the broader industry, the recent Cerulli study found. This growth is being spurred by strong advisor recruitment, breakaway advisors leaving wirehouse and other traditional firms to create their own independent firms, and a growing client preference for RIAs."
If wirehouses were growing market share like RIA's there wouldn't be enough air in the room to talk about anything else. That RIA's are experiencing such growth is a simple testament to how ownership changes and empowers advisors when they set their experience free.
In an effort to make their math work, the wirehouses say they are engaged in a large scale reorg of clients and advisors. In so doing they are unwittingly creating textbook independent practices: high gross businesses with low numbers of clients, run by highly skilled advisors with loyal clientele. And the more they imitate our space, the better positioned we are for continued advisor growth and client capture.
Just think about where these big firms are coming from. Imagine a typical 40-50 advisor wirehouse office, post-merger, some of it empty, most of the remaining space filled with 
underperforming advisors… It’s more of a nightmare for these firms to deal with half empty than fully empty offices that leave people out of the equation. It’s almost certainly true that some of the market share shift is a direct result of the wires trimming out smaller producers and offices in order to reduce costs and increase efficiencies across their platforms. Given the amount of slack in the systems post-financial crisis, this makes sense.
According to a recent Reuters story, industry analyst Brad Hintz of Sanford Bernstein (whose work I have long respected) believes: The wirehouses should prosper because they are selling "complex, higher margin products like alternative investment vehicles and structured products, giving them a significant profitability advantage over firms in other channels.” Notice he didn't claim wirehouses have greater access to these products, just that they'll sell more of them.
In other words, wirehouse advisors will continue to have wealthier clients who will continue to have access to (aka, be sold) higher margin alts and structured products. While I’m sure said clients are relieved by this development the idea that the wirehouses are happy and willing to cede market share strains credulity. That’s never been their MO and it ain’t starting now. Makes for a good excuse though. Winning? Nope.
The fact is, whether they mean to or not, wirehouses are trying to survive by looking more 
and more like independent RIA firms internally. Death of the Wirehouse?! Pishaw! Wrong question. For RIA’s, that's like Christian Louboutin worrying about the death of Nordstrom's.
Here’s what the wires may be missing in this strategy. I know they don’t believe it, but it gets easier every day to go independent. The technology is better, the custodians are better, oh, and most importantly, clients are buying in.
Witness one conclusion from the Cerulli report cited by Andrew Osterland of Investment News: “RIAs [as a channel] are actually getting more of their growth from new and existing clients than they are from new advisers becoming RIAs. In 2011, $118 billion of the $232 billion increase in assets in the RIA industry resulted from new and existing clients contributing more money, while $90 billion resulted from advisers becoming RIAs. The markets accounted for $23 billion in growth. “The organic growth has been a bigger driver than adviser movement,” said Mr. Cloherty. “RIAs are getting a lot of new clients and a lot of new money from existing clients.” BAM!
When I was in management in the wirehouse world we constantly struggled to reverse what looked to be a 10 year downtrend in growth of new assets… not a problem in the RIA world, clearly. Why is this happening?
Osterland writes “Mr. Cloherty attributes much of the growth in the RIA channel to the desire of wealthy investors to diversify their relationships with financial advisers since the financial crisis. The average number of advisers for nearly 8000 households surveyed for the report rose from .7 to 1.2 advisers -- not including 401(k) providers, between 2008 and 2012. For households with more than $5 million in investable assets, the number of adviser relationships rose from 1.4 to 2.3.
Mr. Cloherty said the trauma of the financial crisis led to a lack of trust in investors' existing advisers, and that triggered a desire to have multiple advisers compete for the investor's assets. He thinks wirehouse advisers have been hurt the most from that trend and RIAs have been the biggest beneficiaries. He expects, however, that the trend may now be peaking and that investors will look to consolidate their business with fewer advisers over the next several years.”
Clients now have more advisors per person than they have had in some time. Who will win in the next consolidation phase? No one knows. Yet I have to believe that if clients are moving accounts to advisors who can offer unconflicted and unbiased investment options because of a “lack of trust in their existing advisers” you have to like the chances of this new breed of advisor, the same folks who have overseen a doubling of the market during their time at the helm. None of this is good news for the wirehouses, despite their still dominant share of assets and advisors.
So this debate about the demise of the wires grows stale. They're likely to be with us for some time. Either way, those of us in the independent RIA business will get out of bed tomorrow with the intent to build for our clients a vastly superior, conflict free, solution, because we can. This channel literally represents the best “Wall Street” has to offer, not the best of a single firm- THE critical distinction in the eyes of our clients.
So for all the cited reasons the breathless debate about the life or death of the wirehouses just isn’t that exciting anymore. I guess if you somehow still need to care, buy the stock. It’s as close as you'll ever get to ownership in that model.
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction
Catching a great article on your twitter feed these days can feel like the modern equivalent of catching a fish in a river with your bare hands. That said, I was fortunate recently to see and read Jeff Hayden’s gem entitled Be Happier: 10 Things To Stop Doing Right Now on Inc.com.
All the self-help gurus seem to be good at telling us what we have to “start doing” to achieve something, who’s good at telling us what to STOP doing? For advisors already short on time, subtraction is preferable to addition any day of the week. And while the business of helping clients achieve their dreams can be exhilarating, it’s not like every day brings a torrent of rainbows and lollipops. Like Mae West said about aging, it’s not for wimps.
Jeff Hayden’s list of sins (HT my Catholic upbringing) begins with Blaming and ends with Fearing. In each case, these habits can surely affect our personal and professional happiness. If improperly managed they’ll either detract from our ability to succeed or keep us from chasing our dreams at all. From a client’s perspective, when these traits are personified they probably confirm every suspicion they have about what’s “wrong” with us as a professional class. So with apologies to Jeff, I've adopted his outline but modified the approach to suit the financial services business. Here's to your happiness.
1. Stop Blaming. When things go wrong, take the blame. Clients appreciate that. Blaming your firm, for example, probably makes them wonder why you’re not smart enough to be somewhere else. Taking the blame is an empowering move and because you hate being wrong, you’ll do it better next time to avoid the same outcome repeating itself. When you get better and smarter you get happier.
2. Stop Impressing. Clients want to know that you’re sincere, that you’re intelligent, that you think things through, are reliable and trustworthy. Don't be flashy. New red sports car? You know they're thinking "Is that where my fees go?" Or worse, "The first advisor who shows up to my house in one of those is so fired." And not because they don’t love Porsche. It’s because if you’re that tone deaf they almost have to wonder what other character flaws you possess that they can’t see. None of this requires you to brag, boast, show off. In fact, it works against you. Warren Buffet drove a beater for years, remember? Relax. You'll be happier.
3. Stop Clinging. Speaking of firing someone, holding onto the client you think you need won't make you happier; letting go so you can reach for and try to earn what you want will. The classic case is a big client you simply cannot stand, the relationship is combative, unpleasant or downright mean. Who knows how it got that way? But it's become sand in the gears of your businesss, costing you and all of your other clients your valueable energies. Forget blame. The point is to let it go. You’ll feel like you’ve taken a shower, so will everyone who works with you. The money simply isn’t worth it. As Hayden notes, even if you don't succeed in earning what you want, the act of trying to be true to yourself will make you feel better about yourself.
4. Stop Interrupting. Jeff writes, “Want people to like you? Listen to what they say. Focus on what they say. Ask questions to make sure you understand what they say. They'll love you for it--and you'll love how that makes you feel.” Stop trying to puke all that knowledge all over me. I got it. I want you to listen to me when I’m talking. Heck, you might be the only person who ever actually listens to what I have to say, my kids certainly don't. Advisors can take advice from the drill instructor who once said, "Spend less time on Send and more on Receive." Clients will love you for it and you'll do more business as a result. Destination- Happytown.
5. Stop Whining. The truth is, sometimes you need to get it off your chest. That can help.
But as Hayden says, “Friends don’t let friends whine.” Financial advisors really don’t have time for whining but that hasn’t stopped us from turning it into an art form. And Hayden’s right, “Your words do have power, especially over you.” The real problem with whining is that when you’re done, the problem’s likely to still be there. Advisors, particularly those who are business owners with the power to enact change should spend that energy on action not agony. Get back in the game and fix what’s wrong. You’ll feel better.
6. Stop Controlling. Jeff writes: “Yeah, you're the boss. Yeah, you're the titan of industry. Yeah, you're the small tail that wags a huge dog. Still, the only thing you really control is you.” If you find yourself trying hard to control other people you’re going backwards. Clients don’t like pressure. They like objective fact-based advice. The oldest rule in the book is that no one has to do business with someone that makes them uncomfortable. Be firm but not controlling. A physician may say, “Ms. Smith, you’re sick, you have cancer, as your doctor I recommend chemo” but what she won’t say is “And I will be driving to your house to deliver you to treatment on Tuesday." If Ms. Smith doesn’t want to go, that’s her business. Find clients who want to go where you're going and then give them everything you’ve got, you’ll both be happier with that arrangement.
7. Stop Criticizing. You know how you say to prospects and clients, “I don’t want to say negative things about my competition, but…” and then you go on and do it anyway? Yeah, it turns out they really do hate that. Even if it doesn’t hit them at the moment, it ends up casting a shadow over whatever you say afterword. Jeff notes, “Yeah, you're more experienced. Yeah, you've been around more blocks and climbed more mountains and slayed more dragons. That doesn't make you smarter, or better, or more insightful. That just makes you you: unique, matchless, one of a kind, but in the end, just you.” Here’s a fact, people do not typically respond positively to negativity, and you don’t need it in order to shine before your audience. Stay positive, it will have you standing taller and your clients feeling better.
8. Stop Preaching. Who’s not tired of the sanctimonious declarations that "fee only-ness" is next to Godliness. Seriously? Believe me, there’s a reason your grocery store doesn’t charge a fee. Do I prefer fee only business, yes. But it’s not the best thing since sliced bread, which incidentally I pay for on a transactional basis. You want to judge the rest of us cretins for clinging to our guns and gross, go ahead. As Jeff writes, “when you speak with more finality than foundation, people may hear you but they don't listen. Few things are sadder and leave you feeling less happy.”
9. Stop Dwelling. I once saw an expert defined as someone who’s already made all of the mistakes. That’s surely the truth. There is value in the past and in the mistakes we make along the way, but only if we learn enough to avoid those mistakes in the future. If you’re sitting 
around hating your firm, your partners, your assistant...rather than doing business, who loses? When Springsteen sang, “you have to learn to live with what you can’t rise above…” he wasn't talking about your choice of back-office service provider. Stop dwelling on decisions and choices that no longer work. As Jeff writes, "Think about what went wrong, but only in terms of how you will make sure that, next time, you and the people around you will know how to make sure it goes right.”
10. Stop Fearing. No need reason to modify what Jeff wrote here. The rest is pure Hayden. "We're all afraid: of what might or might not happen, of what we can't change, or what we won't be able to do, or how other people might perceive us. So it's easier to hesitate, to wait for the right moment, to decide we need to think a little longer or do some more research or explore a few more alternatives. Meanwhile days, weeks, months, and even years pass us by. And so do our dreams. Don't let your fears hold you back. Whatever you've been planning, whatever you've imagined, whatever you've dreamed of, get started on it today.
If you want to start a business, take the first step. If you want to change careers, take the first step. If you want to expand or enter a new market or offer new products or services, take the first step. Put your fears aside and get started. Do something. Do anything. Otherwise, today is gone. Once tomorrow comes, today is lost forever. Today is the most precious asset you own--and is the one thing you should truly fear wasting."
Hayden's more than on the mark here. The simple truth is, life rewards action. Financial advisors should always take action to preserve their ability to best serve their clients, maintain their freedom, their personal brand and their enterprise value. There's only one channel in our business that can provide all of these attributes together. If you've been considering making the move to independence and freedom, now might be the time to take action, it just might make you happier.
Jeff Hayden's full article is attached here. http://www.inc.com/jeff-haden/how-to-be-happier-work-10-things-stop-doing.html
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction
People Moves:
Morgan Stanley Team Jumps to Indie Shop in Calif.
By Tom Stabile
March 19, 2013
FundFire
A Morgan Stanley Wealth Management advisor trio that ran $160 million in client assets left the wirehouse last week to join Washington Wealth Management, an independent advisor platform that recently signed a new brokerage relationship with LPL Financial.
Janet Pearce, Bradley Saunders, and Krista Murray left to set up a new office with Washington Wealth in Brea, Calif., about 10 minutes from Anaheim in Orange County. Saunders had been with Morgan Stanley since 1991, Pearce since 1992, and Murray since 2005, according to Financial Industry Regulatory Authority records.
The new office is designed to house three advisor teams, which Washington Wealth expects to recruit in the region. The outfit – which according to Securities and Exchange Commission records runs more than $560 million in assets – already has several other offices on the West Coast, including the Los Angeles, San Diego, Las Vegas, and Seattle markets.
“Washington Wealth Management views the Orange County region as a tremendous area for growth, and the new Brea office includes space for two additional teams,” a spokesman says. “[The firm] is off to a fast start in recruiting advisor teams in Southern California, and expects this momentum to continue throughout 2013 and beyond.”
Under the firm’s model, the new team is an independent practice with its own management structure, but relies on the support services built by Washington Wealth and overseen in the region by David Richman, market area director for Southern California.
Saunders may assist on some of the recruiting effort for additional teams, after having served as regional director for Morgan Stanley for its Southern California and Las Vegas markets.
Washington Wealth has also built a presence in other regions, including its headquarters in Middleburg, Va., and in the Miami and Westport, Conn., markets.
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction
When FINRA rolled out Proposed Rule 13-02 a lot of people in our business freaked; advisors were indignant, recruiters were petrified and branch managers were either quietly cheering for it or arguing about how their firm would find a way to work around it. As you may have heard, 13-02 is the rule that would require any advisor who received a recruiting bonus over $50,000 to disclose it to clients prior to soliciting their business at the new firm. The rule, as presently constituted, is pretty solid on what forms of enhanced compensation would fall under its purview, call it ALL of them, and is equally tough in the level of detail the advisor would be required to divulge, call it ALL of it.
After you’ve negotiated your deal with the new firm and made your move, you’d have to tell your clients about the specifics of the deal, orally or in writing. It might go something generally like this:
(Ring ring) “Ms. Smith, I left the old place for the new place and was given $1.6 million up front with the chance to earn another $2 million over the next few years, etc.…but here’s why I decided to make the change.”
Chilling effect? Oh, I think so. Talk about some inconvenient truths. Does the client even hear anything you say after that first sentence? It would be hilarious if it wasn’t so immediately real. As advisors we worry enough about client perceptions to understand the bombshell this sort of forced disclosure represents, and we used to think fee discussion were hard? Worse, it’s certain to reverberate through your whole business in about three point six million ways; “you want me to pay that $150 fee? Why don’t you pay it, I’m not the one who got paid millions to make this move….” Pleasant.
So with the obvious damage the rule would do to the cause of the wirehouses in The Great Recruiting Wars, would it surprise you to know that it’s the wires themselves who’ve quietly sent the signal that they want, no mas? Seriously, like Lindsay Lohan reluctantly slipping in the back door of a treatment facility, the industry is acknowledging that it has a problem it can’t solve on its own. The brokerages’ main lobbying groups, the Securities Industry and Financial Markets Association (SIFMA) and National Association of Insurance and Financial Advisors (NAIFA), both responded to FINRA during the comment period by essentially asserting that “recruiting bonuses don’t always present a conflict of interest” (emphasis added) according to a recent article in Investment News by Mark Schoeff. Well, if they don’t always present a conflict of interest, then it’s safe to assume the industry is acknowledging that recruiting bonuses DO present a conflict of interest sometimes. In any case, it wasn’t a defense at all, it was an admission, an acquiescence, an implicit agreement with FINRA that the practice should be curbed.
Schoeff quotes Ira Hammerman SIFMA’s MD and general counsel as denying wirehouse influence had anything to do with the lobbying group’s position, instead, Hammerman wrote, “SIFMA’s position on this proposal is based upon the guiding principle that retail customers should have the benefit of disclosure of material conflicts of interest.”Schoeff further quotes Hammerman as writing “In the context of recruiting-related bonus payments, the most important and relevant information for the client is to understand the potential conflict of interest associated with the payment.” That’s pretty direct.
For its part, Cornell Law School also submitted a comment letter appropriately noting that the SEC already requires disclosure of any conflicts , including those resulting from a move. Cornell asserts that if SEC mandated disclosure “helps to protect an RIA’s clients, it will also help protect a RR’s clients (if FINRA made a similar move).”
The foundation of all of this is that the construct of closed operational platforms (read, wirehouses), a product of history and highly irritable compliance attorneys, make advisors and their clients captive to the solution set of single entity. This can result in conflicts most advisors don’t see and are largely unaware of. Simply put, “open architecture” is a concept, not a fact and as they say about those TV diet pills, your results may vary. Ever heard the terms; “non-compensable revenue” “revenue premium” or “pay to play?” Ever been told you can’t discount something, can’t use that portfolio manager, can’t sell that mutual fund- but you can sell this one, have to use this mortgage company or that lending facility, sold some prop product…. The list goes on. At any one point in our careers we can literally be a walking conflict of interest. So when a big bank buys you with an upfront check with all the back end bells and whistles, they aren’t just buying you for your stated revenue, they’re buying you for the ancillary revenues your business provides, most of which you never see or participate in. Hell, even the very existence of the recruiting process itself creates conflicts where there wouldn’t have been any before. Ever hear someone say they wanted to get their production up before making a move? How does that happen exactly, is there not a conflict there?
Add it all up and the wirehouse knows it has a problem when it sits down with FINRA’s lawyers, many of whom the regulator has hired from the Southern District of NY. Those folks DO see the conflicts, they DO know the business and they’re not going to let it slide, especially when brokers are being “induced” to move by 350% deals. So the good news is that between SIFMA and NAIFA’s collective comments it’s clear that the wirehouses are trying not to have an Amy Winehouse moment, they actually do want to go to rehab, but torturing the metaphor a little further, when everyone in the room has a recruiting gun pointed at everyone else, who puts theirs down first? Cue that regulator…FINRA can now jump in like Judge Rhinehold in Beverly Hills Cop yelling for everyone to “DROP IT!” and that’s what they’re likely to do, and what the wirehouses seemingly want.
Despite the short term pain for advisors who miss the window to make a move without required disclosure (and really, can there be that many left at this point?) passage of the rule may have long-term benefits for most. Advisors routinely tell us that they never see their manager anymore- that he or she is always out recruiting or occupied with other items on the corporate agenda. If this rule has the chilling effect on recruiting that most agree it will, wirehouses may be forced to rationalize their recruiting goals and techniques. The momentum will shift to recruiting your own advisors first, aka, retention. That’s a good thing for advisors who have watched a generation or two of good managers, operators who knew the business of getting and retaining clients, get blown out to make way for the cohort of managers who specialize in outbound recruiting. It may also go a long way toward renewing advisors’ faith that the 60% of the revenue they send to the big firm will actually be spent in ways that directly benefit them. Yet big firms are slow to change and, as in any great war, there have been a tremendous number of casualties within those organizations over the last decade that will fundamentally alter the coming time of (relative) peace. Retraining, retooling and re-equiping the branch manager will be no easy task, especially for firms who have demonstrated an apathy or outright contempt for the skillset an era of organic growth will require.
Personally, I welcome the proposed rule. First, because we are engaged in growing a conflict free business and competing with 350% deals is really dang tough. Too often we hear, “sorry, I just can’t say no to that kind of money.” Second, because I fundamentally believe that clients and advisors win in an open, multi-custodial setting, where ALL of The Street’s best ideas are available to advisors and clients at competitive market driven rates, versus the captive platform and pricing of a single firm. Third, because I believe ownership and creation of enterprise value (two things currently impossible in the wirehouse system) are the path forward for advisors, not the gambit of the Big Check.
In a world of mandated disclosure I look forward to our advisors relating to clients the exact nature of their transition assistance versus the costs to make the move and establish their own business, with all of the virtues that then flow to the client as a result. I’m confident their experience will be no different than it is for our current new advisors who are always surprised to hear their clients consistently asking them, “What took you so long?!”
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC.
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction.
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction
This is the second in a three part series designed to help advisors who are considering making a break for the independent space. It is by no means exhaustive, but should get your wheels turning. We’ll keep cranking out the info as long as you want to keep reading it.
"Two hundred thousand dollars is a lot of money. We're gonna have to earn it."
-Clint Eastwood as Blondie, The Good, The Bad and The Ugly
Part 2: The Bad
As the CEO of a firm engaged in helping financial advisors leave the big brokerages and go independent, I spend much of my time listening to advisors tell me what's wrong with their current firm. Many of the stories are familiar, or painful, or both. Some of the stories are funny in that they show an industry segment increasingly divorced from the reality that advisors now have an abundance of other options, and some are so whacked out it's hard to imagine they can occur in any professional environment, much less one as regulated as our business. In the end, they all lead to the same place, frustration. Frustration leads to a breaking point, and once that happens...well, it's time to get out of Dodge, or at least evaluate your options like so many are, http://www.investmentnews.com/article/20120122/REG/301229984
The Check. If you've come here looking for what Tom Petty called "The Big Get Even" then you've come to the wrong place. 350% deals simply don't exist in the independent space. That’s a shame, right? After all, we’ve been conditioned to ask how much anyone would pay us to make a move, not whether they'd pay us at all. We'll save the tedious examination of The Check economics for another time-but just ask yourself; are you inclined to be the owner or the owned?
The wirehouse packages offering a few hundred percent certainly have some appeal. Namely, a $1.4 million (140% up front on $1 million of production) bird in the hand can go a long way towards allowing an advisor to relax about the unpredictability of the future. That money in the bank is real, it earns some interest, it’s a nice, big, number. Half of it will eventually go to pay taxes but it makes for a beautiful headline and it feels great- for a while. Add to that the psychic reward of being courted by another firm with all the trappings that involves along with the natural optimism most of us carry about a new start with new friends and you have an attractive scenario.
Yet along with the obvious sizzle that goes with “selling your book” comes some nagging questions about who these transactions really help. Do they help the client, the advisors, or the big banks more? Doe they increase or decrease your freedom as an advisor? As to their wealth effect on real people, I know very few people who’ve created lasting wealth for themselves in these deals. I know many more who’ve been hurt by them; lifestyle, lost business, taxes, bad investments, etc. all playing a role. I’m not blaming the banks, or the deals for that matter, just noting that the outcome is very often advisors who feel like indentured servants, trapped until some point in the future when their “deal expires.” That’s a sad way to live in a profession that has the potential to offer so much freedom. Meanwhile, if you look at your book, many of your clients are able to be your clients because they decided to dedicate themselves to starting and running a business that became successful. Said differently, they own something. Instead of selling your book, consider what your life would be like if you owned your book?
So while the absence of outrageously tasty upfront capital may appear to be a negative, think of it as a way of keeping all but the most dedicated out of the space while maintaining your ownership of your business. After all, who is going to pay anyone an exorbitant sum to start their own business, retain the lion's share of the profits and all of the long-term enterprise value? http://www.riabiz.com/a/17366656/how-the-luminous-deal-is-rocking-the-recruiting-world----and-may-set-the-stage-for-more-fireworks No one, and you wouldn't own it if they did.
It's a DIY World. Don't be afraid of the curve, the learning curve that is. By definition, moving anywhere is going to take you out of your comfort zone. Moving from wirehouse to wirehouse is akin to moving state to state in the US. The people in the new state may be a little unfamiliar, their accent may be different, but they still use dollars to transact business and they speak English. Moving from a wirehouse to independence can feel like moving to another country. The language is different (custody charges instead of payout), and the currency is different (AUM instead of revenue). Add to this that while things are ultimately going to be much simpler, and dare I say, fun, it may not feel that way at first. Going independent is likely to produce some culture shock related to the DIY (Do It Yourself) nature of the business. DIY means work, like learning a new language, but it comes with benefits like a greater share of the revenue pie along with pricing and brand control. Your manager talks about "building your business" but out here, you literally do.
As a dual registered, hybrid independent advisor you have at least two big early decisions to make; selecting a broker dealer and a custodian. These are crucial decisions replete with nuance so move deliberately, get references, work your network, ask questions early and often. With the wirehouse walls gone you may find yourself marveling at how intricate the regulatory and operational ecosystems are, I still do, and I have a grudging respect for my former firms' abilities to sew the parts together into a workable solution. (I don't miss the one size fits all solution they created to deal with these issues but hey, life is full of little trade-offs...) The effort to learn the ropes is worth it, however, if you plan on owning your business for the long run.
This brings me to my last point, you'll find it easier if you're willing to learn the operational, compliance and tax aspects of the business, but if you don't feel comfortable going it alone, fear not, there's still hope for your dreams of independence. Consider hiring an advisor/partner by tucking in with one of the many aggregator firms, http://www.financial-planning.com/blogs/mindy-diamond-break-away-advisors-due-dilligence-2680573-1.html a local shop that's well established, or using a consultant. Their collective trial and error is leverageable and will save you a lot of headaches, along with a lot of money.
Certainly, much of the good, the bad and the ugly of independence remain a matter of opinion and perspective. What may appear to be a negative for some looks like opportunity to others who truly seek the freedom and rewards that come with ownership. It's not for everyone, but for captive wirehouse advisors with the right skill-set independence remains the sole source of complete freedom for you and your clients. If you believe you've got what it takes, don't be afraid to saddle up and decide who to ride with.
Next up- The Ugly.
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction
This is the first of a three part series designed to help advisors who are considering making a break for the independent space. It is by no means exhaustive, but should get your wheels turning. We’ll keep cranking out the info as long as you want to keep reading it.
"Two hundred thousand dollars is a lot of money. We're gonna have to earn it."
-Clint Eastwood as Blondie, The Good, The Bad and The Ugly
Part 1: The Good
As the CEO of a firm engaged in helping financial advisors leave the big brokerages and go independent, I spend much of my time listening to advisors tell me what's wrong with their current firm. Many of the stories are familiar, or painful, or both. Some of the stories are funny in that they show an industry segment increasingly divorced from the reality that advisors now have an abundance of other options, and some are so wacked out it's hard to imagine they can occur in any professional environment, much less one as regulated as our business. In the end, they all lead to the same place, frustration. Frustration leads to a breaking point, and once that happens...well, it's time to get out of Dodge, or at least evaluate your options like so many are, http://www.investmentnews.com/article/20120122/REG/301229984
But, as you consider whether a move to freedom makes sense I encourage you to internalize this thought; independence is not a panacea that painlessly cures the ills of the wirehouse. At times it can feel like the the frontier, meaning that while there certainly are gold mines, open fields and unfettered opportunity, there are also highwaymen, houses of ill repute and a lot of uncharted territory. Yes, out here the payout is higher, but it comes at a cost. If you're not ready to earn it, better to swallow your pride and stay in town. Here's the good, the bad and the ugly about going independent.
Control. No one, including anyone in your current management structure, knows more about your clients, what they need and how to serve those needs, than do you. In the independent space that knowledge means you can tailor your offerings and services to suit your clients' needs; custody, commission charges, software, technology, real estate, etc, are all a la carte decisions made by you. Simply put, as opposed to handing over 60% of your revenue and hoping for the best, you pay for what you use and no more. Ever wonder if you could do a better job with that 60%?
Freedom To Be You. So often advisors find themselves chaffing against strictures designed to keep the one bad apple from spoiling what's left of the wirehouse's bunch. This unfairly limits the large number of really talented advisors. No matter how qualified you are, how experienced or knowledgeable, your best twitter option is often a canned tweet written by someone else. And yes, you can use LinkedIn, but only in a certain way and forget facebook, a tv ad, an interview with Bloomberg radio, and the list goes on. The point is, it's their brand not yours, and they don't want you muddying the branding waters with people they perceive to be their clients. Reality check, your clients are with you because of you, not because they are loyal to the big firm. There's been a slow, decade-long march to big firm brand oblivion and unfortunately, you've been along for the ride. There's a reason that breakaway advisors retain 75%-90% of their clients in a move. Imagine how well you could communicate your value with your own brand, logo, website, social media, blog, white papers...and the list goes on.
Investment Choice. You may not have a keen sense for how custody works in the independent space (a story for another time) but I'm sure you can see the value of being able to choose your custodian; examples include, Fidelity, Pershing, TD Ameritrade, Schwab, LPL and others. It feels great to be the client. Custodians all have their relative strengths and weaknesses, but they exist to win the battle for your attention and your clients' assets. Partner with the right one and they will deliver value-added services like you won't believe. Need a Bloomberg machine, they can help. Want to develop a marketing campaign for your proprietary options strategy, access to research, golf tickets...? If one custodian fails you, mistreats a client, or cannot accommodate your needs, you move. One good custodian in your life is great, but two can be even better. The "multi-custodial” approach is still a relatively new approach to most advisors (and most custodians), but if you believe in the value of competition, or just need a specific expertise for a portion of your business, having the flexibility to migrate assets to competing platforms endows your business with great power, and your client is the ultimate winner. In addition, you'll have access to all of the investment products each custodian can provide (including perhaps, those of your former firm) with superior pricing.
These are just three broad characteristics of what's GOOD about independence. If you have specific questions you'd like to see addressed here, or answered privately, feel free to contact me.
Next up, THE BAD.
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free.
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction.
Rob Bartenstein is the CEO of Washington Wealth Management, LLC. A multi-custodial, nationally registered hybrid RIA dedicated to setting experience free. Opinions expressed are his own and do not necessarily reflect the opinion of Washington Wealth Managment, LLC. Learn more at www.washwm.com
No information provided on this site is intended to constitute an offer to sell or a solicitation of an offer to buy shares of any security, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under securities laws of such jurisdiction