“To a large extent, [broker-dealers] are just forgivable note peddlers. That’s their primary sales pitch when they talk to advisors — what we’ll give you if you move,” argues recruiter Jon Henschen, in an interview with ThinkAdvisor.
“Upfront money should be a spice, not a main course,” says the founder of Henschen & Associates. “That should not be a primary motive for moving, by any means.”
Henschen also has a strong view about BDs who mark up outside money managers’ fees, which are paid by the client. The advisors typically aren’t aware of “the manipulation,” he says.
“Some of the firms are getting downright abusive in their markups. The broker-dealers certainly make things opaque and hidden,” he notes.
Henschen opened his firm in 2001 and is nowadays focusing more and more on helping FAs to become RIAs, either starting their own advisories or joining existing ones.
The RIA channel is the fastest growing, according to Henschen. The channels losing advisors the fastest are wirehouses, captive insurance BDs and banks, he says.
In the interview, the recruiter discusses what he expects to be “a fast-growing part of the industry”: larger RIAs who take independents under their umbrella but let them run their practices independently.
Based in Minnesota, near St. Paul, Henschen started out in the 1990s as a broker with Merrill Lynch and Prudential Securities. After that he became a mutual fund and annuities wholesaler. By 1998, he was recruiting for National Planning, a broker-dealer. ThinkAdvisor recently interviewed Henschen by phone.
A “frustration point,” he says, is that when speaking with certified financial planners, some seem dismissive of the fiduciary standard, to which they must now adhere on plans and investments. “They make comments like, ‘Yeah, fiduciary standard — what’s that?’” he says. But others are “very careful to adhere to it.”
Here are highlights of our conversation:
THINKADVISOR: How strong is the trend of independent advisors going RIA?
JON HENSCHEN: The fastest growing channel is the RIA channel. Independent broker-dealers are second.
The channels losing the most advisors are [in descending order] the wirehouses, captive insurance broker-dealers and then, the banks.
When advisors contact you, do many want to become RIAs?
A lot of times they’re not aware that there are RIAs they can join, keep their independence and drop client costs dramatically.
Why are you focused on the RIA channel?
Because RIAs can have huge savings for clients since they’re [required to adhere to] the fiduciary standard on investments.
You can either go to a broker-dealer that pays you a big upfront check — that’s [actually] going to be paid for by your clients — [or go RIA].
It’s a matter of: Do I do what’s best for the client, or do I do what’s best for me?
Unfortunately, it certainly seems that [many] financial planners are more concerned with what’s in their best interest, not necessarily their clients.’
What stands out right now in the RIA space?
One area of the RIA market that I think is going to be a fast-growing part of the industry is the larger RIAs that bring on independent advisors who can be under their RIA but still operate independently.
For example, you could be at a broker-dealer and net, say 65%-75%, and then join an RIA and, maybe, net 88%-90%. So the advisors could net quite a bit more and cut their overhead dramatically.
Opening your own RIA or joining an outside RIA is appealing because it offers more choices and gets rid of a lot of layers of broker-dealer costs. It also gets rid of the conflict of interest.
When you go to an RIA that isn’t affiliated with a broker-dealer, you get away from [many] fees and get much lower administrative fees on the advisory assets. So it’s a much lower-cost, transparent, fiduciary-friendly environment.
Why else do you think the RIA channel will grow faster than the independent broker-dealer channel?
It’s because of two events, both of which motivated me to get deeper into the RIA channel. The first was when CFPs were required to adhere to a fiduciary standard not only on their financial plans but on their investments.
Enforcement of that started in June 2020, though I haven’t heard of any cases of disciplinary action [thus far]. The other event was when outside custodians, like Schwab, TD Ameritrade and Fidelity IWS [Institutional Wealth Services] stopped charging a ticket charge on stocks and ETFs.
That was another big deal because it made wrap accounts obsolete.
What are the main motivators for advisors to want to move firms?
There are a lot of reasons, like better culture and access to outside custodians. Also, there are trigger events, like regulation change such as implementation of new compliance; Reg BI, for example.
Some firms are heavy-handed and make a lot of [compliance] changes that turn reps off, and you may see outflow. Other trigger events are broker-dealers getting sold and mergers, which can [set off] a flurry of broker-dealer changes.
What was the most recent merger trigger?
Probably when Voya got absorbed by Cetera [in June]. The reps thought: “Hey, our firm is getting sold. Do we go with Cetera and take the retention bonus? Or do we look around and go where we want to go?”