reasons why
wirehouse advisors
should go independent
wirehouse advisors
should go independent
They have abandoned their training programs in favor of locking-up advisors in long-term recruiting contracts. They’re going into downstream businesses such as discount brokerage, which we’ve seen with Morgan Stanley’s purchase of E*TRADE. Their aging advisors are retiring at an accelerating pace. Branch management compensation is on the decline. Culture and morale has been steadily declining for years.
and this explosive growth is coming at the expense of wirehouses. Why are veteran financial advisors – some with decades of experience – choosing independence over the “big recruiting checks” offered by wirehouses? This is akin to the old tortoise and hare story, where the wirehouses’ overconfidence and presumptuous attitude made them lazy when it came to steadily building what their advisors wanted and their clients needed. Independent advisors, backed by innovative platforms truly focused on their needs, are now well-positioned to win the race because they have consistently stayed true to serving their clients’ best interests – and that’s where the rewards are found.
Do you find that e-mail review is excessive? What about mutual fund switch letters and activity reviews? Do you find it galling when a compliance manager calls your client?
Knowing how important client communication is, do you get frustrated because you can’t send a letter, a news article or a research report?
It’s as if wirehouse advisors are presumed guilty and they have to prove their innocence.
They won’t risk their job by saying “yes” to a financial advisor when “no” is the easier answer. Yet every “no” means another client has been inconvenienced and disappointed. And disappointed clients close their accounts. How hard is it to replace a one-million-dollar account? This is called managing to the lowest common denominator!
We operate under the belief that advisors are honest. We are in the service business and meeting the needs of clients is paramount. Yes, managing risk is important.
Whereas we see wirehouses erring on the side of eliminating risk, independent firms trust their advisors, genuinely care about their clients, and find a smart, prudent way to say “yes.”
Almost every wirehouse now offers discount brokerage (think how Morgan Stanley acquired E*TRADE) and almost every wirehouse now offers financial planning and investments from a salary/bonus advisor (think how Bank of America absorbed U.S. Trust).
Independent firms are 100% committed to the financial advisor model.
We are 100% committed to the fee-based compensation model. It’s just that simple!
Equally important, they are 100% committed to paying advisors fee-based compensation.
approach
Wirehouse compliance makes it
nearly impossible to:
Independent Firms:
Client acquisition
approach
Wirehouses
Independent Firms
Wirehouses know the majority of their advisors haven't saved enough for their retirement.
Furthermore, wirehouses are basically using their inhouse retirement programs to buy the books of business from aging advisors at a discount. And then they tie up the inheriting advisors for several more years by having them sign contracts.
Meanwhile, independent advisors are in the unique position to acquire other advisors' books industrywide. Importantly, buyers and sellers can customize transactions to optimize tax benefits, incentivize key-employee retention and, above all, focus on client retention.
Even more worrisome is the possibility of some wirehouses moving to salary/bonus compensation. Do you think wirehouse C-Suites are frustrated by how much advisors are paid? Do you believe they'll remain neutral on this topic in perpetuity?
Independent advisors in the 1099 channel enjoy grid rates that typically begin at 80% and increase to 90%. Respectfully, independent advisors have expenses such as rent, personnel and technology. Hence, the grid generally nets out between 50% and 70%.
Similarly, independent advisors in the W-2 channel generally have grid rates that begin at 50% and increase to 60% (based on growth).
Think about the people you work for at the wirehouse; think about those at the top. Do you believe they care about employees? Do you believe they care about you? When your production is up year-over-year, the answer is yes. How about when you make a mistake or have an off year?
You now have the honor of building the firm you always wanted to work for. You now have the honor of being the leader, and mentor that inspires your colleagues to achieve to the best of their ability. You will find that your leadership style will focus on serving your clients, serving your team, and as a result,
It takes years to build a pristine reputation, and only a day to lose it! When you work at a massive global wirehouse with tens of thousands of employees, scandal and wrongdoing are almost inevitable. And while you may be far away from the incident,
Independent advisors no longer have their fate in the hands of corporate behemoths who have teams of people inhouse and at agencies working to repair, polish and restore their reputations after a scandal. As an independent advisor, your years of building personal goodwill with your clients won’t be torn down by a rogue trader or a senior executive found guilty of embezzlement. You will be able to personally manage your team and the reputation of your firm.
And your clients will respond positively to your commitment to accountability.
Would you say the culture is marred by punitive policies, empty offices and employee complaints? Are you and your colleagues tired of receiving corporate e-mails filled with political correctness? After years of seeing little, if any, change in response to the Employee Survey, is it fair to say, "you're jaded?"
When it's your firm, you can nurture a positive culture where the 'boardroom' is often filled with warmth and laughter. You can celebrate your colleagues' birthdays as well as many of the holidays throughout the year. Would you say the culture of your new office would welcome spouses (significant others) and children stopping by? Would you and your colleagues enjoy a volunteer day at a charitable organization? Do you envision running a firm where holiday parties include spouses and significant others?
Wirehouses have reduced the number of branch managers. They've cut branch manager compensation. Wirehouses have steadily closed offices over the past decade. They have cut back or eliminated their "new-advisor'' training programs. Wirehouses have reduced their spend on "in-house" product specialists. They also doubled the revenue (1 Mil to 2 Mil) for a client associate. You get the point.
What happens when the list is exhausted? There's only one left. Financial Advisor Compensation.
They offer holistic financial planning, asset allocation, investment methodology and annual
performance reviews to measure goal attainment. This approach leads to referrals.
Referrals lead to asset growth. Asset growth leads to revenue growth. Both empower independent advisors to invest in their companies.