A new wave of advisors is flirting with the independent channel—a move fraught with uncertainty, tinged with promise, and dominated by one core question: Will my clients follow me?
“A lot of research describes the transition to independence in behavioral and demographic terms. It does so with facts and figures about how many advisors are likely to move, the number of models they’ll choose from, and the percentage that are likely to be happy,” says Barnaby Riedel, chief research strategist for Riedel Strategy, a Newport Beach, Calif.-based market research and communications firm. “Yet advisors, almost universally, talk about the move as a kind of leap of faith. If you miss that kind of leap, and the quality of the decision-making, you miss the most important aspect of the advisor experience.”
Riedel says the independent sector has tended to push the benefits of a move while failing to address the costs involved. He dismisses those benefits—a broker-dealer’s or custodian’s performance, technology, culture, payouts—as mere table stakes.
“Advisors measure success not in terms of what they got but in terms of how these costs were mitigated. How many clients did they actually keep? How long before they were back up and running?” he adds. “They are operating within a much richer field than just performance would suggest. They are thinking about their families and a whole host of moral concerns, social concerns, relational concerns.”
The last wave of breakaway brokers was propelled by advisors distancing themselves from wirehouses whose brands were battered during the financial crisis. New elements are in play at the moment—fiduciary concerns and a rethinking of fees, chief among them.
Today’s players are also moving to the independent space as a result of succession planning and lifestyle change.
As Tim Oden, senior managing director of business development at Schwab Advisor Services, puts it: “The content of the conversations we are having now is different. You have advisors who want to ensure a legacy for their clients and for their employees that goes beyond their own involvement with the firm. And you have people who have Type A personalities, are successful and wealthy themselves. They’re asking: How can I get out of getting up early, suiting up, jumping into my commute and working 10 hours? How can I get out of that model? I don’t want to die in a commuter train or die at my desk.”
As niches evolve, advisors are also moving to the independent side to practice a specialty or even subset specialty, according to Richard Dragotta, an LPL Financial branch manager in Paramus, N.J., who heads a network of 90-plus advisors. Sample niches include the retirement plan market and Medicare and Social Security planning. “You’re going to see this gain traction as things get even more competitive,” he notes. “Everyone will have a specialty.”
While the desire to operate independently of a corporate agenda remains a driving force, most advisors today don’t have to be sold on the depth of an independent offering. And with independent broker-dealers, RIA’s and hybrids, there are more platforms than ever to choose from. What will never change? “It’s still a trust me,” says Oden.
“Does it take faith? It takes a lot of faith. Will my clients buy the new model? Will they have faith and confidence in the new model? Will they get what independence does for them? Do they like me? Do they like the new friends I’m hanging out with?” he adds. “They need to be able to tell the story of independence very, very well.”
The Challenge Ahead
Dragotta has a term for the transition experience: controlled chaos. It’s not particularly pretty, but it is doable.
As he positions it: “Will clients choose ‘you’ the person or ‘it’ the statement?”
The first thing he does is counsel advisors that change is good—as long as it’s change in the right direction and for the right reasons. The most successful advisors, he says, are those who have thoroughly investigated and evaluated their options—and then executed in a timely fashion.
“It’s never easy. But if you are a person who has built up years of relationships, they will migrate to you. When you talk to clients, explain it from the heart. The truth doesn’t lie. There’s a reason you are leaving and it’s a personal reason. It’s a personal connection,” says Dragotta. “It’s about the relationship. As long as their money is still as safe as it was the day before, and as long as you can do the same business you could do for them the day before, retention is high.”
One other question that keeps advisors up at night: How do I survive a revenue gap?
“The allure has a lot to do with putting your stamp on something and calling it your own—not being part of a larger organization or someone else’s employee,” notes Scott Curtis, president of Raymond James Financial Services. “You are moving from an environment where the space you go to every day is paid for by someone else; the folks on your team are paid for by someone else; the technology you utilize every single day is paid for by somebody else. If there is a big drop in the market, assets and revenues, all those fixed costs are now your responsibility. There is absolute anxiety that comes with it. For the right people with the right mindset, there is excitement that comes in addition to the anxiety.”
Last year, Cetera Financial launched its “Truth Is” campaign, designed to recruit new advisors to the 7,400-person network. Created by Riedel Strategy*, it deals with the leap of faith head on.
“All of the competitive messaging in the industry focuses on what advisors can expect to gain from transitioning to a new firm: a brand new iPad, culture. Yet our emphasis on gain is not congruent with the actual decision,” says Susan Theder, Cetera’s chief marketing officer. “As humans we are driven far more by motivation to eliminate the downside and protect against risk than climbing to the top of the mountaintop for that dangling carrot. Fear of loss exceeds expected gains.”
The campaign explores those fears—led by shout-outs such as “Truth is explaining a move is easier than you think” and “Truth is your clients will follow you” and “Truth is you will wonder why you waited.”
“Instead of ignoring this side of the decision, we acknowledge the advisor’s fears and use them to start a real conversation and a real relationship,” adds Theder.
A couple of months ago, Cetera’s advertising and marketing campaign accounted for the largest proportion of advisor introductions in its pipeline—overtaking introductions from recruiters for the first time.