Independent business owners associated with broker-dealers have a real chance today to capitalize on the frustrations that wirehouse advisors are experiencing with regard to increasing compliance burdens, lack of support and compensation limitations.
A big problem, however, is that most of the firms these principals represent are not positioned properly to benefit from this unique opportunity.
Even in the case of top independent firms that are growing at a fast clip, principals often feel they are leaving chips on the table because they can’t seem to recruit the top talent and assets they desire. They worry that organic growth alone is not enough to allow them to remain competitive and that what got them “here” will not be enough to get them “there.” There are many reasons why these firms are struggling to grow , and they include:
- their firm’s “value proposition” is lacking the “sizzle” that would resonate with this audience
- their firm’s platform is not robust enough
- the firm’s principals lack the experience and skills to be able to recruit successfully
- the firm’s broker-dealer is not doing enough to support the firm in providing the thought leadership, support, and resources that business owners require
Fred and Steve’s Story
Take the example of Fred and Steve, principals of a $600mm independent firm in the Pacific Northwest. Their firm is recognized as one of the top, fastest growing firms in the industry and has never lost a client in it’s 25-year history. Their pipeline is bursting at the seams with prospects and client referrals and they are firing on all cylinders, yet they have not been able to recruit a quality advisor to their firm in the past three years. And, while they have built a phenomenal infrastructure on their own, they have not had the opportunity to leverage economies of scale. If they could add even one or two advisors with meaningful assets to the firm, they could add revenue without taxing their staff or capacity.
As Fred and Steve age, it becomes more important for them to be able to recruit younger talent to the firm so that they can remain relevant to the next generation of clients and avoid the issue of attrition taking its toll on their future growth prospects. The team approached my firm about their current frustrations and desire to recruit, and we had a productive dialogue. I shared the following advice:
- The broker-dealer model in general can be somewhat limiting in terms of platform and product, and in their case it was definitely affecting their growth potential. Without access to a robust platform including alternative investments, private banking and lending, trust capabilities, and cutting-edge technology, for example, most wirehouse advisors will see your firm as inferior. I suggested they ask themselves if they believe that their firm and platform are the best there is- not only to serve their existing client base but also to attract higher net worth prospects and the advisors who serve them.
- You are competing against every other independent firm that wants to grow by way of recruiting, and all firms are looking to tap the same pool of advisors. Without a truly differentiated story (such as potential for equity ownership, access to capital to be used for transition incentives, world class platform, and more), you won’t stand out in the crowd and you will severely limit your chances for successful recruiting.
- You should expect more from your broker-dealer. For example, they should provide you with recruiting assistance - possibly in the form of warm leads, capital to make acquisitions, a fully robust platform, coaching and mentoring on how to recruit, and introductions to third party search firms. If your B-D is not providing this type of assistance, it may be time to consider other alternatives.
Fred and Steve took my advice to heart and are currently exploring many options including changing broker-dealers, or becoming an RIA hybrid firm.
The Bottom Line
More than ever, principals of independent firms need to determine if they have the support and horsepower necessary to attract top talent and grow optimally. Many business owners believe they have the appropriate window dressing needed to attract top talent, but often they are incorrect. When sophisticated advisors look behind the curtain, they need to be more than sufficiently impressed with the capabilities of the firm and the broker-dealer behind it. They need to see ways in which the firm could help them grow faster – specifically by way of access to the best in class technology, research, solutions and products available in the industry today. If you feel that your firm could be lacking in these areas, it will most definitely affect your ability to recruit the kind of advisors you seek. The good news is that there are excellent alternatives to get you from “here” to “there” and fuel your growth beyond your expectations.
I could not agree more with you observations. Several years ago a n extremely accomplished wirehouse broker with several billion under advisement asked me to help him find a more supportative platform for advisory services and fiduciary standing. Everyone was interested in this multi-million dollar revenue practice, yet not one brokerage firm , custodian, RIA roll-up could even respond to an indepth RFP we created which outlined the specific needs of this accomplished advisor who was active in the instututional and HNW markets. Based on the facts and the desire of the broker not to have to reinvent the wheel, he just want to leverage through existing enabling resources--my advice was to stay where he was. At this juncture, There is no large scale institutional support for advisory services, though the American ingenuity exist to make expert advice safe, scalable, easy to execute and manage atcost lower than a packaged product--it has not yet been embraced by the brokerage industry.
AS many top broker's have found, when recruiting the capabilities of the recruiting firms are invariably overstated, which can be ruinous for the broker after the fact. I am glad you are urging caution in these matters as most broker dealers are not particularly adept in assessing their own advisory services supoport capabilities, nor is it politically correct to do so..
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Many Advisors have difficulty getting their arms around the trade off in making a (+/-) 40% payout at a wirehouse and (+/-)90% as an RIA... On one platform everything is provided for you and they take the lions share of your revenue in hopes you will never find out how easy it really is. On the RIA platform you own your own business, have to step up a little for some of your comfort items but for the most part the business is almost exactly the same. The biggest difference comes when it's time to retire. Even smaller well structured RIA's are fetching 6-8 times EBITDA. Compare that with the common "Sunset" offerings wirehouses make and laugh all the way to the bank!