It's not exactly cats and dogs living together, but a new white paper from Sanctuary Wealth Services surmises that independent advisors and wirehouse brokers could definitely learn a lot from each other when it comes to attracting and retaining clients and would do well to learn from each other's mistakes in the future.
In the wake the brutal economic malaise that left many investors sour and many of their referring professional associates shamed, independents and wirehouse jockeys are both struggling to find new sources of referrals and ways to bring once-bitten and new investors into the fold.
"Independents are terrific at client retention, comprehensive wealth management and building trusted relationships, but lack the sales and marketing savvy of wirehouse brokers," Jeff Spears, the chief executive officer of Sanctuary Wealth Services, said in the report. "Brokers are great at sales, but don’t capture the same share of wallet as independents because clients are often wary of their firm’s motives."
After some of the big-name banks and investment firms either went belly up, begged for bailout dollars or found themselves in the crosshairs of an SEC investigation, investors -- particularly those of the high net worth variety -- migrated to independent advisors in waves, eroding a big chunk of the base most wirehouses counted on for their revenue.
Meanwhile, the attorneys and CPAs of the world who recommended so many of their customers and friends to independent financial advisors just in time for the market meltdown are understandably hesitant to make any more referrals after so many were burned the last time around.
"The good news is that existing clients of independent advisors are helping offset the decline from other referral sources," Spears said. "Wirehouses are trying to combat their reputation as asset aggregation machines by retraining brokers to be better at comprehensive wealth management. Yet, wirehouse brokers face a new challenge -- increased pressure to cross-sell non-investment related products."
While independents could surely do for a little of sales and marketing savvy that's the hallmark of brokers who cut their teeth in wirehouses for years, the brokers need to take a page out of the independents' book by paying closer attention to their full range of investment and financial services needs.
And both could certainly improve their branding by becoming more involved on and aware of social media sites like Facebook and Twitter where so many of their prospective new clients are spending so much of their time these days.
Independent advisors report only lose about 3% of their clients a year on average, an impressively low attrition rate that's mainly chalked up to their expertise at building and sustaining relationships for the long haul and investors perception that they're looking out for their best interests and not simply selling investment products.
Wirehouses, meanwhile, typically lose 10% to 20% of their clients every year and typically are only given a portion of an average investor's total assets while most independent financial advisors are entrusted with all or most of the client's assets.
"Independent advisors built their business not by glad-handing or selling proprietary products, but on relationship-building with referral sources, objective advice and outstanding customer services," the report said. "In fact, many independents view business development like old-fashioned doctors do -- as something unseemly."
Wirehouse brokers, meanwhile, aren't the least bit timid when it comes to customer acquisition and coming from a culture that ingrained these aggressive selling techniques at every step along the way. By familiarizing themselves with a wider variety of financial products and services as the independents have for years, they'll be in a better position to attract new clients whether they do it for their current firm or if and when they breakaway to go it alone.
"By adopting the best practices of independents, wirehouse advisors can help insulate themselves from the growing perception that wirehouses care more about selling products than anything else."