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25% of Wirehouse Advisors May Go Indie by ‘19: Cerulli

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By 2019, 72% of wirehouse advisors who say they have a retention contract at their current broker-dealer report that their contracts will expire, according to a recent report from Cerulli Associates. Cerulli expects about half of wirehouse advisors surveyed to make intra-channel moves and nearly one-quarter to adopt some form of independence (in independent broker-dealer, RIA or dually registered channels).

“Advisors who moved within the past three years cite the desire for greater independence as the most important factor influencing their decision to switch firms,” the report states. “Recruiters relay to Cerulli that more advisors are at least considering independence, and it is easier to make the transition as retention deals approach expiration, because they do not have to compensate for their initial upfront payout.”

Cerulli finds advisors are enticed by the independent model, compensation, greater autonomy, value and a more personable culture. “[A] recruiter shared that ‘[those] folks who truly go RIA are tired of big firms, tired of employee model, [and] want a non-conflicted type of environment.’ He added that those who do move are rarely unhappy with their decision,” the report explains.

According to Cerulli, 55% of advisors who have been working at their current firm for three years or less cite the “desire for greater independence” as a major factor to switch firms. But the research suggests that there is some hesitation for these advisors to embrace complete independence and start a firm on their own.

Cerulli finds that advisors are more inclined to team up with other advisors in an existing firm or create a new firm with other advisors, director Bing Waldert says. “Many advisors are daunted by the task of forging their own path and the accompanying headaches,” he explained in a statement. “Advisors considering the RIA channel are increasingly looking to join existing firms that can provide them with not only the necessary operational infrastructure, but also a sense of community.”

Of the employee advisors (wirehouse, bank broker-dealer, insurance and regional) who prefer independent channels, nearly 18% said they would start a new firm on their own, according to Cerulli. Meanwhile, the rest sought collaboration: 35% said they would join an existing independent firm as a partial owner or principal of the firm, close to 30% said they would start a new firm with another advisor(s), and roughly 18% said they would join an existing independent firm as an employee of the firm.

Data reported to Cerulli on advisors’ previous channel and trends in the industry indicate that IBDs are losing many advisors to the dually registered and RIA space and “will likely continue to do so,” Cerulli says. “This is particularly true for high-producing advisors, who find the higher payout and autonomy of affiliating with an RIA too attractive to ignore,” the report states. “For these IBD advisors, flexibility is a major factor influencing their preference (i.e., fees, technology, marketing, fiduciary, ability to take discretion).”