What You Need to Know
- Crisis is the mother of change, especially in the financial industry.
- The Great Recession and now the pandemic have shown wirehouse advisors the path to independence.
- Back in 2016, asset flows to the independent channel exceeded flows to wirehouses and banks for the first time.
The most impactful lesson I’ve learned in my long career is: If necessity is the mother of invention, then crisis is the mother of change.
The past 13 years have witnessed two periods of tidal transformation precipitated by crises. The first occurred in 2008, fueled by the financial crisis that led to the Great Recession. The second happened last year, caused by the COVID-19 pandemic that continues to disrupt markets and lives around the world.
First Wave: Financial Crisis
In 2008, as part of the founding management team at Hightower, I was responsible for business development. Launching a business at that time focused on recruiting corner-office financial advisors out of wirehouses and into independence. That might sound crazy, but the timing proved to be perfect.
Firms were imploding as advisors scrambled to manage deteriorating market conditions, crumbling brand reputations and massive client fears. However, amid seemingly endless days and nights of stress and worry, many of the industry’s best advisors discovered clients were staying with them despite, not because of, their firm affiliation.
They had truly emerged as trusted advisors and began recognizing an opportunity to explore the world of independent wealth management. Most advisors who took that leap tend to be far better off.
Transitioning to independence allowed them to become true fiduciaries and focus on the best interests of clients, while building their own legacy and enterprise value. It also provided better access to technology, products and support, on top of much-appreciated freedom from bureaucracy and ineffective firm management.
About 10 years ago, when I was working as a consultant, a senior executive at a major wirehouse called me into his office and said, “Ed, I think this tsunami to independence is exaggerated. I just don’t see it!”
I agreed, saying that the media tends to cover trends from an extremist angle, but added that “every tsunami starts with just a few ripples at the shore. Firms that ignore those ripples do so at their own peril.”
Sure enough, advisor and client movement to independence only grew over the ensuing years, reaching an impressive milestone in 2016, when asset flows to the independent channel exceeded flows to wirehouses and banks for the first time.
Second Wave: Coronavirus Crisis
When the second wave of change stormed ashore last March, COVID-19 forced advisors nationwide to fundamentally alter how and where they worked. Nobody knew how long the situation would last when restrictions were imposed that required most advisors and their staff members to work from home.