Yearning to Be Free

As distressing as the market cataclysm has been for individual investors, financial professionals in every stratum have experienced multiples of this strain. Not only do they have anxiety from client portfolios that are seriously under water, they must initiate and field scores of calls each day from clients who are at their emotional nadir. Many professionals within firms whose reputations have been sullied must defend the honor of their employers–and their own integrity, by association. The final blow: a tough hit to advisors’ personal financial statements as options and deferred compensation plans issued shrivel under the heat. Many advisors feel that they only can trust themselves to redeem their reputation, their financial position, and their pride in the profession.

Their choices are manifold: form or join an RIA, form or join a broker/dealer, or create a hybrid firm with boots planted in both the broker/dealer and RIA worlds. Already-established RIA firms and independent broker/dealers are looking at the teams and individuals within wirehouses to solve their own talent shortages. As events drive good people to the exits at wirehouse firms, these organizations are fighting tooth and nail to retain those who still retain faith in them.

The wirehouse financial professionals who are contemplating a transition and the firms that covet them have some natural synergies–and the potential for great economic impact. And with each breakaway advisor we meet, it becomes clearer that the decision to leave is not purely financial. A primary complaint of these captive advisors is that no matter how loudly they express their concerns and disenchantment to their current bosses about the way things are done, their employers tend to respond with money–retention bonuses, sweetened payouts, more deferred compensation benefits. Experience tells us that throwing money at unhappy people is not going to make them happy. They might accept additional funds as compensation for pain and suffering, but many recognize that their issues are being buried–until they emerge again.

Ready to Make a Move

Like Dusty Springfield in her plaintive tune “I’m All Cried Out,” many wirehouse advisors are ready to move on. Earlier in their careers, the decision to defect may have been more emotionally wrenching because of the pride and loyalty they felt for the companies that hired them. But, alas, this was supposed to be reciprocated.

These advisors were told by their managers that “independence is for losers.” They were given the impression that it is a harder way to do business, less financially rewarding, and less prestigious than the brand-name firm. Like ?migr?s from the old Eastern Europe who sent home pictures and stories of the glorious free world, breakaway pioneers kept sending messages to their friends “inside” that life is good out here. While the trip over was scary, assimilation turned out to be pleasant. As independent advisors, they may serve their clients as they personally feel is best without being tied to proprietary solutions, and build a business free of firm reputational taint and negative reinforcement.

While many advisors fleeing wirehouses will choose to create their own businesses, established RIAs and broker/dealers with existing infrastructure have a good opportunity to demonstrate their value to breakaway advisors. About a third of the advisors who approach us at Pershing are not interested in the risk or challenge of owning a business, hiring staff, negotiating leases, and performing management tasks that take them away from serving clients.

But the vast majority who hear the siren’s lure to independence are committed to the idea of going it on their own. One reason for this interest may be that when these advisors interview other firms for possible affiliation, the first and second discussions are all about payouts and signing bonuses rather than about how they will be helped to serve their clients better. Unfortunately, many recruiters are not recognizing what is driving advisors to leave their current firms.

The real issues relate to how they will be allowed to practice, the culture of the organization, the opportunity to add the people they want to their teams, technology that allows them to operate most effectively, and the types of investment and risk management solutions available. In the case of advisors choosing to create their own enterprises, they also want help in developing and implementing a business strategy; hiring, recruiting, and retaining staff; and assuring clients that their approach is a better, safer, wiser way to do business.

When You Know It’s Right