English novelist Lewis Carroll once said, “If you don’t know where you’re going, any road will get you there.” If you are a financial advisor who is frustrated with your current situation and would like to make a change, but are not sure where to go, this quote is particularly apt. The good news is that for advisors who are looking for different ways to practice, there are more new and exciting models than ever before; the key is plotting the route that leads you to the right destination – one that will add the most value for you and your clients.
Independence looks very different than it did just a few years ago; it has evolved tremendously. Today, no matter if you’re a wirehouse advisor looking at independence for the first time, or an already existing independent looking to change broker-dealers, you have many degrees of independence from which to choose. Be it an RIA, IBD, quasi-independent, service provider, multi-family office, or consolidator, there is a seat for virtually any quality advisor who seeks greater freedom and flexibility, access to open architecture, higher payout and wants to be in control of just how much independence he wants.
Many, if not all, of these options were created by former captive advisors and thought leaders expressly to solve for the most common roadblocks that kept them and their colleagues from going independent in the past.
The independent broker dealer (IBD) model offers advisors greater freedom, flexibility and open architecture where the advisor becomes a business owner, but gets support on a national level from the firm. This model bridges the gap for advisors who feel the tug of wanting to be an entrepreneur, but who still want the safety and stability of an established company behind them. Firms including Wells Fargo Financial Network (FiNet) and Commonwealth Financial Network, Raymond James, and LPL offer strong research and advisor back office support, as well as the ability for advisors to build one’s own brand with complete autonomy to decide what’s right for clients. Where desired, advisors can plug into existing independent offices thus avoiding the start-up costs associated with opening a new office, and take advantage of other cost reduction opportunities.
For the ultimate in freedom, independence, open architecture, and client-centric holistic practice, the RIA model is optimal. In this “buy side” model, the primarily fee-based advisor acts as true fiduciary, creating competition for price and service, and has the ultimate say as to where his clients’ assets are custodied and who manages them. In addition, he can provide an easier to understand pricing model for clients, and have greater predictability in revenue. This model is reserved for advisors who have the most entrepreneurial DNA and want to take complete responsibility for their firm’s success or failure and all day-to-day operations including compliance and oversight. Custodial firms include Schwab, Fidelity, Pershing, and TD Ameritrade. Tuck in opportunities exist in this space as well, for advisors who may not have adequate resources or desire to go it entirely alone.
Mid-way between total independence and captive employee is what’s known as the quasi-independent channel. Here, firms such as HighTower Advisors and Raymond James Advisor Select, took much of what was great about being a wirehouse advisor and combined it with the best elements of being independent. What resulted are firms where top advisors are W2 employees who enjoy full branch support, have more control over their own P&Ls and access products and services on an open architecture basis. It’s the perfect solution for breakaway advisors who want to monetize, as well as have the opportunity for equity in the partnership (in the case of HighTower), without the complexities associated with creating own’s own firm and brand.
For advisors who seek independence but want to outsource most, if not all, of their ongoing administrative and operational responsibilities, firms like CONCERT Advisor Services and Washington Wealth Management are ideal models. CONCERT, for example, offers a turnkey solution - including finding, leasing and building out office locations - for independent advisors who want to retain 100% ownership of their businesses while using CONCERT’s multi-custodial corporate RIA. CONCERT becomes the advisor’s middle and back office which helps advisors focus more on their business and core competencies.
In the same category, but a very different firm in terms of advisor profile, Dynasty Financial Partners is a leading wealth management platform firm designed for the top 2-3% of independent advisors working with high net worth clients. Dynasty fully supports independent firms, and does not take an equity stake, allowing advisors complete control over their businesses. And, for those advisors who would like capital as they go independent and to already independent firms looking to add tuck-ins, Dynasty provides low cost financing.
Possibly better-known and more widely discussed in the media, consolidators (sometimes referred to as roll-up firms) can help partner firms grow in ways they may not be able to organically, and essentially, help them to go independent with a firm that will share the risk while advisors retain control of their businesses and brands. For advisors looking to take some chips off the table and access greater resources and thought leadership, this is a compelling channel.
Focus Financial Partners is the largest investor in the independent space with 24 partner firms today who collectively manage over $50B in client assets. The essence of a transaction with Focus is that firms sell a portion of equity in their RIA without giving up control, and in return receive long term capital gains treated consideration. Focus has tremendous access to capital including a $320M credit facility to be used for acquisitions, and partner firms can access this capital to expand through sub acquisitions. Focus is solely an investor – they take no spread on products and have no revenue share agreements of any kind.
United Capital and its affiliates, advise on over $14 Billion in assets, and selectively partner with the top 5% of advisory firms and individuals. It’s ideal for advisors laser focused on their clients’ well being and desirous to grow under one vision, one brand, and one financial planning delivery model. Principals run their practice and have a wide array of tools, resources and coaching at their disposal to improve the client experience, meaningfully grow organically and inorganically (recruit/sub-acquisitions), as well as centralize operations, improve profitability and more. Depending on a practice’s size and United Capital’s existing market footprint, new firms can open up new markets or combine with an existing United Capital practice. The majority of United Capital’s Partner firms grow on average 40% in the first 2 years.
Plotting Your Destination
Many of the options across today’s independent landscape did not exist until several years ago. If you have not looked beyond your own firm in the recent past, I submit that it might well be worth the time to do so – even if it’s just to confirm that you are in the exact right place for yourself and your clients. This way, you can make a fully informed decision whether to stay put or plot a new course for future success. As with assessing any life change, the value-add needs to be significant enough to make it worthwhile.