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Advisors Find Increased Revenue, Happiness in Independence: Schwab

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More money, fewer problems? Most advisors say they have increased their revenue since going independent. They also say they’re happier, according to a new study from Charles Schwab.

Schwab’s Independent Advisor Sophomore Study aims to understand the motivations, mindset and experiences of financial advisors who have recently made the transition to the independent model (or as Schwab considers them, “sophomores”).

The online study, which was conducted from Jan. 17 to Feb. 5, was sent to 696 advisors, drawn from Schwab’s client database, and received 67 completed responses. To qualify for the study, advisors must have started or joined an existing independent investment advisory firm in the past seven years.

According to the survey, most advisors have increased their revenue since going independent. The survey finds that 70% of respondents said their revenue had increased, whereas 15% said it had remained the same and 15% said it had decreased.

This is perhaps not what wirehouses would have their advisors believe, according to Shirl Penney, president and CEO of Dynasty Financial Partners.

During a press briefing in New York to discuss the study results, Penney said: “I think the wirehouses do a really good job of pouring a lot of Kool-Aid frankly down the throats of advisors about independence being a guy or gal working out of a basement and they’re one step away from being put out of business. And obviously that’s not the reality.”

According to the survey, banks, brokerage firms and broker-dealers are the biggest springboards to independence. Half (51%) of survey respondents said the firm they last worked for prior to becoming an RIA was a full-service bank or brokerage firm (e.g., Merrill Lynch). Meanwhile, 40% said they’d been at a national, regional or independent broker-dealer (e.g., Raymond James, Ameriprise, Edward Jones).

The advisors that have become RIAs show no regrets, according to the survey. The survey finds that nearly all advisors (96%) said they would make the decision to go independent again and are happier now as an independent advisor (93%). A majority (66%) also said they should have made the decision to go independent sooner.

As Penney said, the percentage of advisors that go back to wirehouses is close to zero.

“Nobody in this room has written a story on ‘break-back brokers,’” he said to the room full of press. “It just isn’t happening. All roads are leading this way.”

According to Penney, one of the reasons the movement to independence has been so successful is because all the elements that an advisor would evaluate are “better on the independent side.”

“It’s better for their clients, it’s better for their employees, and it’s better for them economically — both in terms of cash flow as well as the enterprise value of the business that they own,” Penney explained.

The study backs this up too.

Doing what is best for investors is the most important reason to go independent, according to 94% of survey respondents. Other reasons include wanting to provide more personalized service to clients (69%) and preferring to work for themselves (69%).

Tim Oden, senior managing director of business development at Schwab Advisor Services, thinks it’s these drivers that will continue to fuel the movement toward independence.

“The strength and momentum of the drivers behind why people are making this decision to move to independence remain as strong and compelling as they ever have — and in many cases more so,” he said.

The study also finds that advisors say they can build stronger bonds with clients as an independent.

According to the survey, 73% of the respondents said they were able to build better, longer term relationships with clients as an RIA. In addition, 64% said their clients were immediately on board with the move. And close to half said they were able to attract more clients than they could prior to being independent.

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