Why Wealth Advisors Leave the Biggest Private Banks for Small RIAs

What You Need to Know

For advisors who seek to provide highly specialized services to UHNW clients, the backing of a large private bank can be a blessing and a burden.
Though such institutions bring substantial resources to the table, they also bring service model restrictions and the pressure to meet aggressive sales targets.
Lumina Consulting founder Jeff Shipley says more bank-domiciled advisors are making the choice to break away to either start or join independent RIAs.

For many years, the story about big-ticket teams of wealth advisors choosing to leave large private banking institutions tended to be about their successful courtship by other large private banks, with top advisors frequently jumping back and forth between the likes of Morgan Stanley, UBS, Wells Fargo, Goldman Sachs and others.

As Jeff Shipley, the founder of Lumina Consulting, recently told ThinkAdvisor, the winning bank would attract new talent (and new assets) by pushing its advisor support and client service offerings “one step ahead of the competition,” especially when it came to helping advisors stand out in the eyes of highly affluent clients.

Since about the time of the Great Recession, however, another trend has emerged — one which Shipley says is accelerating rapidly today and which led him to found Lumina Consulting in the first place.

Increasingly, Shipley says, wealth advisors domiciled within big private banks are finding their ability to deliver customized and responsive services to high-net-worth clients curtailed by more restrictive service models and proprietary product sets.

Adding to the challenge, Shipley says, such advisors often find themselves “pushed to prioritize winning the next ultra-high-net-worth client over serving the last one well,” and the collective result is a lot of “unhappy private bank advisors who are asking whether there is a better way of doing business.”

According to Shipley, the answer is yes, and more specifically, advisors who feel thus constrained are responding enthusiastically to the opportunity of breaking away and either founding a new registered investment advisor shop or joining an established independent RIA.

While they may give up the backing of some of the biggest and most sophisticated financial services organizations in the world, Shipley says, the majority of advisors who make the jump find they are happier after the transition — as are their UHNW clients.

A ‘Broken Promise’

Shipley says he is closely plugged into this trend because his firm is intimately involved in the work of helping private bank advisors explore the opportunity to transition their business from the private bank channel into the RIA space.

In fact, he says Lumina has helped several dozen private bank advisor teams make just such a pivot in the past 18 months, and the firm just established a new transition-support partnership with Alpha Capital Family Office to deepen its reach and expertise.

“Traditionally, private banks delivered a better client experience for wealthy individuals and families by providing access to the bank’s top professionals in order to help manage the financial complexity in their personal and business lives, often over multiple generations,” Shipley says. “Today, private banks have discarded that model in favor of service and structure analogous to the big Wall Street brokerage firms.”

By this, Shipley is implying that large banks have “cordoned off” the private bank advisory segment of their business, thanks to a complex set of reasons that involves greater regulatory pressures, fierce profit motives and a sharp focus on liability reduction and service scalability.

“The reality is that private bankers, to the extent that they still exist, now focus on helping their clients navigate the big retail banking organization,” Shipley says. “They now focus more on protecting their clients from the bank, in fact, and the [UHNW] promise has been broken, in our opinion.”

These advisors, according to Shipley, feel increasingly unable to serve as UHNW clients’ lead advisor, and they are unable to adequately address key service areas such as estate planning, longevity risk management, asset protection planning and charitable giving.

A Better Model for Many

Echoing Shipley’s comments, Alpha Capital founder Doug Campbell says he has lived this journey personally, having worked for Wells Fargo, Morgan Stanley and UBS earlier in his career before breaking away nearly a decade ago to form his own firm.

The Path to Independence

According to Shipley and Campbell, advisors often assume their clients will be skeptical when they learn their advisor is going to leave a major banking institution. In reality, they say, the clients tend to respond enthusiastically.

Still, as Shipley and Campbell emphasize, the choice to go independent is not a trivial one, and it takes even teams with a strong conviction and interest in independence a substantial amount of time to organize and enact their transition.

“We break it into five projects to get them ready,” Campbell says. “Even if a team is set on a transition as soon as possible, it generally takes 90 days to enact what we consider to be all the best practices across transition planning, staff preparation and marketing. For example, we want to make sure it is celebrated when they exit and join the new firm as partners.”

The “real key” to a successful transition is everything that goes into practice management coaching, Campbell says. In other words, it is essential for soon-to-be-independent advisors to understand exactly what they are going to be giving up and what they are going to be gaining with the transition.

“You do lose resources, but from that fiduciary service perspective, there are probably 30 or 40 different individual wins that come from independence,” Campbell says. “For every particular client, there are probably there or four different service improvements that are going to be specially relevant or germane. So, knowing exactly how these benefits are going to flow through to the clients — that’s key from day one.”

Another obvious but important area of consideration is how the compensation model is going to change. Generally speaking, independent advisors are going to be compensated based on the revenue they manage and not the products they sell, Campbell explains, and that can be a big adjustment.

“The exciting part is to see advisors embrace the fact that they can participate in the growth of the enterprise’s holistic value,” Campbell adds.