Independent or wirehouse? The question used to be that simple for traditional advisors thinking about an independent alternative. But with multiple platforms gaining traction, advisors looking for the right fit are bumping up against something that once would have been unthinkable: multiple choices. “The power now lies with the advisor,” according to Chip Roame, managing principal of Tiburon Strategic Advisors, the Northern California-based research and consulting firm. “Just look at the firms catering to them to create models for them. There’s nothing black and white about it anymore. It’s all about: ‘Which shade of gray should I pick?’ I think you’re going to see more firms — independents in particular — offering more models. My advice to those who aren’t? Innovate.”
In the spotlight, at the moment: Raymond James, Wachovia and Ameriprise. Each one offers several advisory models.
As Wachovia Securities’ Chip Walker, managing director of Financial Advisor Integration, with five different platforms for 10,480 advisors, puts it: “The more choices you offer to financial advisors, the better your opportunity one will strike a chord with them about what they are really looking for. Where have they been in the past? Where are they going tomorrow? We talk so much about the consultative process, the needs-based process, in terms of clients as we customize the best solution to fit their needs.
You would think you’d want to do the same thing with financial advisors themselves — to custom-tailor the right solutions for their business. The vast majority of firms out there can ask all the questions they want, but they don’t have but one solution to offer.”
And, at Ameriprise Financial, Brian Heath, president of the firm’s U.S. Advisor Group, notes: “It’s all about offering people choice in affiliation. Some want to sign the lease and turn on the copier and run the business. Others would rather concentrate on the development of their practice. What we are seeing is people looking at choices and making decisions more around what best suits their business style and choosing less based on payout rates and whether that means going independent or not.”
Ameriprise, focused on financial planning, has 10,500 “branded” advisors, including 3,000 employees and 7,500 franchisees, or independent contractors. The firm also owns Securities America, an independent broker-dealer with 1,750 advisors. Ameriprise, according to Heath, brought on its most hires ever in the first quarter, mostly into the independent space.
An important consequence of the multiple platform offering: succession planning.
“One of the things we really like about the platform offering is that people can develop the business with the support of the firm in a very intensive way. As they progress in their careers, they can move to an independent platform, have equity in their business and establish a succession plan,” Heath adds. “I’m seeing more and more people looking for a combination like this. It’s more textured. And, like any capitalistic pursuit, the more demand you get in a system, the more creativity the system delivers.”
The move toward choice within a single firm — a spectrum that swings from employee-based to semi-independent to all manner of independent — has definitely lifted the conversation to a new level. Here’s what insiders and pundits alike are saying about:
The “semi-independent” space. It may not have the numbers now, but at least conceptually, it’s got some sway. As Roame notes, “Truly going independent is a daunting task. Going semi-independent with some kind of package or way station is a lot more reasonable and a lot more attractive to a lot more people.” In fact, he suggests that independent firms without semi-independent components “start thinking backwards” and integrate them.
A career continuum. One of the chief attractions of an all-in-one shop is the opportunity to jump from one platform to another without changing corporate homes. “There’s the ability to cycle through one firm,” says Dick Averitt, chairman and CEO of Raymond James Financial Services, which offers three different independent platforms. Raymond James & Associates, by contrast, has two employee channels. “I know one advisor who’s made two moves and a number of others who have made one. The switch I’m seeing now is from independent but registered to fee-only. Where there is flexibility, there is the potential for movement.”
The wealth-management card. Historically, wirehouses have been the market leader when it comes to wealth advice. Across the independent channel, firms are rushing to provide wealth management training, services, products and support to advisors who want to cement relationships with the rising affluent. As examples, Raymond James Financial Services launched a new wealth services group in February. Ameriprise typically hosts two to three wealth strategies conferences each year for its franchisees. This year, there are eight. And Commonwealth Financial has just unveiled Wealth MAP, a financial planning process emphasizing wealth management as a business model.
Indies Have Momentum
Against this backdrop is the consumer’s continuing demand for “objective” advice from “independent” advisors. A McKinsey & Co. study released last year showed independent advisors were viewed positively by 43 percent of respondents. The top five brokerages won a positive rating of 28 percent. On the bottom of the list were insurance companies, with 24 percent.
A new study from Cerulli Associates, due out this month, supports the notion that favorable public opinion lies with the independent sector. “The reason why they prefer independent shops as opposed to, say, wirehouses, is the fact that a lot of independents offer full-scale planning services where some wirehouse advisors are perceived to be more product-oriented,” according to research analyst Joe Lamoureaux. “There’s definitely a push toward more independent advice and with the wealth transfer that’s coming, it’s going to get even sharper.”
Industry experts say wirehouses have been proactive, creating “private client groups” and “wealth advisory groups” that directly appeal to consumers looking for objective, independent advice from a smaller shop. As Patricia Abram, senior managing principal for CEG Worldwide, the consulting and coaching firm, observes: “Wirehouses are figuring out one model does not fit all. They’re getting creative and flexible.” And she has a name for the advisor working in the private client construct: intrepreneur. “These are people who have found tremendous success doing their own thing inside the bigger model,” she adds.
Mark Elzweig, who heads an executive search consulting firm in New York, believes multiple platforms will be the big winner as advisors — and clients — look for choice.
“There are a lot of very good people at the wirehouses who are not selling in-house products and who are really picking what they believe are the appropriate investments. But what the McKinsey study makes clear is that in terms of being viewed as objective, the independent channel has a very strong edge,” says Elzweig, who has studied the data closely.
“I think these firms are very smart to introduce these multiple platforms. What they are successfully doing is basically figuring out how to retain a traditional advisor that otherwise might leave to go independent. What many big producers want is a feeling of total objectivity, and they want their clients to perceive them as being totally objective,” he adds. “So you’re going to see more firms offering more choices to their advisors, whether it’s as a traditional advisor or as an independent advisor, and it’s very wise on their part.”
As for the numbers, it’s clear that the momentum continues to build in the independent space. According to Cerulli, wirehouses experienced a 3.53 percent decrease from 2004 to 2005, leveling off at 70,805 advisors. By contrast, the independent channel saw a 31.05 percent increase, jumping to 106,688 advisors.
The most recent statistics from Tiburon Strategic Advisors, for 2004, are a little different but they deliver the same basic message: 68,000 wirehouse advisors compared with 82,000 independent advisors.
More Choices or Half Measures?
Not everyone, of course, is sold on the idea of multiple platforms.
As John Rooney, a managing principal at Commonwealth, puts it: “This is a very interesting trend we’re seeing. The game in this business now is how do you service reps and incent them to stay with you? What a lot of companies are trying to do is stem defections away from their historic and core business model to other models by stripping services and relying heavily on their technology. For us, the rep is so important to us I wouldn’t look at creating a stripped-down version. I don’t see Ritz-Carlton and Four Seasons running out to downscale their brand.”
However, he adds, “It certainly keeps us attuned to our reps’ options. You have to balance their demand for higher services while remaining competitive on the pricing side of the business. If companies like Commonwealth and LPL can’t demonstrate the enhanced efficiencies reps gather for being with us, then I am going to have a problem. It hasn’t happened yet.”
Bill Dwyer, managing director for LPL, the nation’s largest independent firm, also rejects the idea that the multiple platform is an up-and-coming model.
“The reality is that with proper support and start-up experience, going from an employee to an independent-contractor advisor is really not that difficult. Halfway steps ultimately leave the advisor in a situation where they tend not to be that happy. Having a very consultative process and thorough transition can help an advisor demystify owning and operating a business. We don’t see a demand [for alternatives] in our space.”
Rex Whiteside: On Cycling Through Platforms
There wasn’t anything Rex Whiteside didn’t like about his five-year affiliation with Raymond James & Association.
“I loved it. The culture was everything I wanted it to be. The traditional employee environment was what I was comfortable with at the time. I loved my job [as an assistant branch manager and producer.] Usually you leave a firm because you are unhappy. I didn’t leave Raymond James & Associates because of any issues,” says Whiteside, 36, an advisor since 1991. “I just had a change in mind-set about how I wanted to grow my business. I wanted to own it.”
Whiteside didn’t have to move far.
Last July, he joined Raymond James Financial Services, co-branding his Houston office as Whiteside Investments.