As if breaking away from established banks and wirehouses didn’t already present challenges for advisors, Chris Freimuth and Jim Perkins told ThinkAdvisor they had to overcome additional obstacles caused by the COVID-19 pandemic in order to launch their own RIA firms in March.
One of the downsides was the “uncertainty” that a crisis like the current one “brings to investors’ minds in general,” according to Freimuth, who left Bank of Oklahoma, where he worked for the past 18 years — the past two as managing director and, before that, as president and chief investment officer of its parent company — to start Elk River Wealth Management in Denver.
Freimuth pointed to the case of one client who “won’t move” over with him to Elk River, at least for the time being, because that client represents a small foundation that “wanted the institutional backing” during this “moment of uncertainty” created by the pandemic. In addition, there are “some clients that I think are coming but were a little bit paralyzed by the moment,” he said.
“I didn’t plan when I started thinking about this to have it happen in the middle of a pandemic,” he added with a laugh.
However, in at least one way, the current situation has oddly proven to be “a blessing,” he noted, explaining it was “easy for me to contact people” when trying to reach clients to explain the move he was making and get them to sign the needed paperwork for them to move along with him as Elk River clients.” Clients have been easier to reach because they are all home sheltering in place like almost everybody else, he said.
That was the same positive that Bill Blyth, president of Chicago-based Blyth & Associates, recently said he experienced after leaving Securities America to join the hybrid platform of LPL Financial in the middle of the COVID-19 pandemic.
Meanwhile, the “biggest challenge” that Perkins faced while leaving UBS to start the boutique hybrid RIA firm Quantum Private Wealth in Lake Forest, Illinois, was “not having actual people on site to assist with the paperwork,” he told ThinkAdvisor.
“The process is paper intensive … because the majority of our clients have layered entities,” he explained, adding: “There is printing, marking where to sign, overnighting, collecting and scanning. All take time. And you do not want to make mistakes [and] have to go back to the client twice.”
In the case of both advisors’ transitions to start their own firms, they were significantly helped by support from transition teams and Fidelity, which is serving as each RIA firm’s custodian, Freimuth and Perkins said.
The ability for most clients to just provide positive consent and sign paperwork using DocuSign eSignature to move with the advisors to their new firms makes the process easier also, at least in most cases, Joe Kurtzer, executive vice president and Head of Client Experience at Fidelity Institutional, pointed out.
“Support from a transition team and support form Fidelity was all remote” in the case of Quantum, Perkins noted, pointing out that the date selected for the official switch was “right in the middle of the lockdown.”
Wealth Advisor Growth Network, meanwhile, helped Elk River manage its transition and faced its own challenges as a result of the pandemic, according to Jay Hummel, a partner at WAGN and its co-founder, with John Phoenix.
“John and I have done a lot of breaks. It’s the first time we’ve ever done one remotely,” Hummel told ThinkAdvisor, noting it’s not so easy to set up a new office when everybody has to be at least six feet apart.
Three days before the transition to form Elk River was to become finalized, a security guard at the new office’s building told Phoenix that the building might be shut down. “We were frantic because all the paperwork and all the computers were in the building,” Hummel recalled, adding: “We almost ran the transition out of John’s house.”
However, the transition has “gone smoothly after that,” Hummel said, noting: “There’s about a thousand things you worry about when you do a breakaway and a global pandemic has never been on our list. But it is now.”
Despite the challenges, he argued that now is actually the best time for an advisor to go independent because “clients need great, independent advice more than ever with all the uncertainty in the world.”
Echoing Freimuth, he said: “The hardest thing in a breakaway is to get the client’s attention” because they’re usually busy with their business or travel and “to get them to return paperwork” can take a while. Right now, however, “we’re going to find every client because they’re going to be at home and we’re going to have their attention.”
Despite the challenges presented by the pandemic, breakaways are typically “well thought-out and well-planned events,” according to David Canter, executive vice president and head of the RIA Segment at Fidelity Clearing & Custody Solutions.
Noting Fidelity has helped with the transitions of a few firms during the pandemic, he said: “We’ve been remarkably able to do a lot remotely, if not everything.” The firms have also “shown a remarkable resiliency and the ability to get their firms up and running and engage with clients” despite the situation, he said.
“We’ve seen a secular shift” of advisors going independent and “we see that trend continuing and possibly accelerating by virtue of this crisis,” albeit not in the next few months maybe, he said, adding: “We have a robust pipeline of folks that are breaking away.”
He hadn’t heard that any of them have decided to reverse course due to the pandemic, but a couple are thinking of delaying the move by a month or two, he said.
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