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Indie BDs Dominate as Tech Rises and Brands Fall

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For decades the industry has seen a gradual migration of advisors from employee-based channels to independent operators. In fact, industry researcher Cerulli predicts that in the next few years, there will be more advisors and assets in the independent channel than in traditional Wall Street brokerage firms. The breakaway broker phenomenon is alive, well and growing fast.

What fuels this movement? Beyond the headline-grabbing scandals of the financial crisis, high commissions and product failures that have plagued wirehouses, investors are becoming fed up with how their money has been handled in these traditional models.

While these firms talk a good game, investors have become more educated about fiduciary issues and why it is critical for their financial futures to work with someone who has their best interests at heart.

Yet there still are more than $5 trillion in assets housed with these four firms (Bank of America Merrill Lynch, Morgan Stanley, Wells Fargo and UBS). Industry experts have predicted a day of reckoning would come, but thanks to one of the longest and strongest bull markets, that death knell for Wall Street remains at bay — for now.

And that is because, while investors may not like the institutions, they remain loyal to their advisor and therefore are willing to put up with problems of the mother ship.

Along these lines, it has become a new communication challenge for branch managers to try and stem this tide and keep advisors in their seats. Executives and their branch managers continue to propagate the idea that advisors could not be successful on their own because they needed the brand, product access and technology that these full-service firms have historically provided.

However, post-financial crisis, those brands have been damaged with a never-ending list of scandal-laden headlines, fines and customer complaints surrounding fake accounts and more.

Investment product access is now open architecture and available through the independent platforms, while wirehouse technology has lagged the times due to the structural issue of having to manage to the lowest common denominator of advisor that populates their thousands of advisors.

The Big Trend

The good news for the independent industry is that technology leadership has rapidly moved to independent advisors as their growth and success are attracting investment from both incumbent firms and newcomer disruptors.

Case in point: the Technology Tools for Today (T3) exhibit hall. For 15 years, industry tech guru Joel Bruckenstein has led the T3 conference to showcase and exhibit the latest technologies available to independent advisors.

Hundreds of independent RIAs come to T3 every year to shop for the latest in client portals, wealth reporting platforms, mobile apps, rebalancing tools, account aggregation systems, workflow automation and more.

By being able to customize the latest technology to independent wealth management delivery, innovation is thriving in the independent space without having to be limited by massive bureaucracies, committee oversight, and lengthy rollout schedules that plague the wirehouses.

This year’s recent T3 Advisor conference, held in early February near Miami, provided a long list of new innovations that will continue to accelerate the breakaway movement. Top of the agenda was the release by Orion Advisor Services of its new trading and rebalancing platform Astro.

Astro enables advisors to customize portfolios and build their own index to manage the account for legacy positions or ESG purposes without having to stray from risk/return parameters. By investing in the underlying securities, advisors can mimic an index and no longer need the ETF or mutual fund structure, so they can easily harvest tax losses, protect legacy positions and provide a powerful benefit to their clients.

Without this trading horsepower, advisors in the wirehouse-type settings are forced to delegate to expensive managed account overlays that can drive up the costs for investing. For Astro, Orion is charging $50 per account, a truly disruptive price point. According to Alex Murguia of McClean Asset Management, “Astro is like having your own institutional trading desk at your disposal.”

The rise of model marketplaces is another area that is disrupting traditional Wall Street managed accounts. Large asset managers such as BlackRock are making their strategies available through portfolio accounting/rebalancing systems such as Orion, Black Diamond and TD Ameritrade’s iRebal, through which advisors can access these high-quality strategies, in many cases for free, further driving down the costs of portfolio management.

Additionally, this new distribution strategy for large asset managers enables them to get distribution to a growing segment of advisors through the technology pipes of popular portfolio management systems instead of depending on expensive wholesalers working the wirehouse branches.

This trend is upending the marketplace as firms such as BlackRock (Future Advisor), Invesco (Jemstep), and Wisdom Tree (Advisor Engine) acquire digital platforms.

More Players

Other technology innovators on display at T3 showcased powerful technology platforms to enhance the client experience online. Firms such as eMoney, Wealth Access, Riskalyze, Advisor Engine, Oranj, and Circle Black are building elegant client portals and taking advantage of improvements in account aggregation to provide full balance-sheet views of investors’ net worth.

These wealth views are available through native apps on the mobile device platforms of Apple and Google, further extending the independent advisor lead in being able to meet their clients where they live: on their phones. The wirehouses, meanwhile, still struggle to integrate their operating systems from the many mergers caused by the financial crisis and simply haven’t the time or resources to innovate for their advisors.

As investment management continues to become commoditized by the entrance of low-cost robo advisors from VC-backed startups and the online discounters, advisors need to demonstrate their value propositions beyond just running the money, which has led to a resurgence in financial planning. Accordingly, the financial planning technology ecosystem is being supercharged with massive investment from resource-rich firms such as Fidelity’s acquisition of eMoney and Envestnet’s acquisition of Finance Logix.

Now, newcomers are enabling disruption, such as financial planning technology provider Advizr. Fresh off a series A funding round from top firms such as Franklin Templeton and SEI, Advizr launched two new products at T3 this year, including a self-directed planning tool for 401k plan participants that will be available to Alight’s (formerly Aon Hewitt) 19 million plan participants.

Plus, Advizr launched Accelerate, which creates the ability for advisors to open accounts and fund transactions directly from the financial planning analyses through an innovative integration with Apex clearing — the custodian famous for being robo advisors go-to platform.

“The financial planning process is genius. However, Wall Street’s approach has been to lead with investments or insurance, which is backwards,” said Advizr CEO Hussain Zaidi. “That industry’s tech stack needs to be reverse engineered and that is what we are doing with Advizr.”

Ultimately, T3 brought together 80 innovative advisor technology firms and has been the incubator and accelerator for emerging technologies to help independent advisors manage a more efficient, profitable and fiduciary style business. Wealth management is changing rapidly and the independent side of the street is now where advisors, companies, capital and tech talent are now aggregating,

If you want to get a glimpse of the future for how wealth management advice, products and services will be delivered, look no further than the exhibit hall at the annual T3 Advisor conference. Technology is now the tip of the spear aimed directly at Wall Street’s heart.

The question remains, can they innovate for their advisors fast enough and get out of the way of this juggernaut, or will it finally become the one thing that does them in. Technology waits for no one — if in doubt, just go ask your friendly neighborhood taxi driver, video rental operator, book seller, music store owner, or film developer what happened to them.

— Check out Why Are So Many Advisors Leaving Wirehouses? on ThinkAdvisor.