The trend of wirehouse advisors joining the independent RIA channel has ramped up significantly in the last several years, and is only increasing in the wake of Wall Street’s epic meltdown. Wirehouses have slashed their incentive payments and investor confidence in wirehouses has plummeted. A growing number of very successful financial advisors are looking for a better way to serve their clients and are seeking a new start by joining an existing RIA firm.
A recent Cerulli Associates study found that 65% of wirehouse reps said they would consider going to the independent model if they were to change employers, while only 19% said their preferred firm would be another wirehouse.
The decision to add a former wirehouse advisor to your practice must be made in the context of several key issues. In our experience at Schwab facilitating these marriages of breakaway advisors and existing RIAs, we’ve identified eight core questions to address when assessing whether you should, or shouldn’t, tie the knot.
Question No. 1: Does It Fit Your Business Strategy?
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Adding an advisor must make sense relative to your overall professional and personal goals–including revenue and profit targets, service initiatives, and succession planning. If you are looking to add new services or target a new niche, for example, consider whether it’s best to look to a new advisor for those capabilities or if another method (such as a strategic alliance) would be more effective.
Also reassess your own role within the firm. Would the addition of a breakaway advisor enable you to transfer some responsibilities and focus your time on other activities? At Gratus Capital Management in Atlanta, for example, the addition of Merrill Lynch advisor Brian Doe in February has enabled owner Hank McLarty to share key duties and enhance his service offering. “He gives me an outlet for new clients who might not be a perfect fit for me–I have a highly qualified, highly professional, and high-character advisor who I can send clients to when I’m not the ideal person for them,” he says. “I’m also no longer the sole driver of all new assets and relationships.”
Question No. 2: Does It Fit Your Firm’s Processes?
Review your existing technology systems and infrastructure to determine if you have the ability to support a new advisor. Can your current capabilities effectively support the advisor’s product mix and investment approach? If not, what capabilities would you need to add to be effective? And would the expense of doing this be matched or exceeded by the advisor’s ability to enhance your bottom line? According to McLarty, “We were looking for an asset base that was somewhat similar to how we manage money so we wouldn’t have to create a whole new system. The systems we use matched up with Brian’s types of accounts, so we knew that working with him wouldn’t negatively impact our efficiencies or scalability.”
Question No. 3: Does It Fit Your Organizational Structure?
Be sure to analyze your existing team structure and determine what role you want the advisor to play. You’ll also need to take the advisor’s own biases and experience into account. Some advisors are accustomed to a “silo” structure in which the different advisors at a firm operate independently from one other. Some advisors may prefer to continue operating in such a way, while others will be enthusiastic at the prospect of a more team-based approach.
Such issues are paramount for John Burns, founder of Burns Advisory Group in Oklahoma City, who has added two advisors from the wirehouses. Although each operates as an affiliated advisor in a satellite office, both are willing and able to collaborate–a trait Burns says was essential. “We share knowledge, and as a result, we can do better work with clients and prospects, do better marketing and do a better job of getting the right clients and retaining them,” he says. “The people who work out best have to want to give as well as get.”
Question No. 4: Does It Fit Your Business Model?
RIAs who bring aboard ex-wirehouse advisors tend to gravitate toward one of two approaches: the employee/partner model, or the platform support model. In the former, the advisor joins an existing practice and works as an employee or equity partner. This approach can allow the advisor to very quickly begin serving clients with minimal costs, which benefits both the advisor and the firm.