Declarations of independents
Advisers exit big firms
Vaya con Dios, Merrill Lynch, Morgan Stanley, Wells Fargo Advisors and other major brokerages.
Many trading pros are looking to leave the big firms and become independent securities advisers — enabling them to do a better job for clients while earning more.
That’s what thousands of former brokerage reps and advisers are saying as they start independent advisory firms.
“There’s no sign of slowing down our activities. The case for the independent is more compelling now than it has ever been,” said Jon Beatty, senior vice president and relationship manager at Charles Schwab.
“Independent advisers are the growth story of the advice industry,” he added.
Two recent studies, one by Schwab Advisor Services and another by securities industry observer Cerulli Associates, focus on why reps jump ship and how the securities industry is changing. They also examine why most former wirehouse reps have no intention of ever going back to employee status at a big firm.
Besides having more control of client relationships and making more money, Cerulli projects that the business of the independent registered investment adviser (RIA) is growing at a faster pace than wirehouses and will continue to do so.
The independents’ asset market share will increase from 23 percent in 2015 to 28 percent in 2020, according to Cerulli.
“While wirehouses still hold a substantial share of assets, RIAs are the growth story,” wrote Kenton Shirk, an associate director at Cerulli.
“No one is running this story,” said Shirl Penney, president and CEO of Manhattan-based Dynasty Financial Partners, which helps advisers become independent. The overwhelming majority of clients he works with succeed in setting up new independent advisory firms, Penney said in a panel discussion of the Schwab study.
Schwab Advisor Services, which provides asset custody, trading and support services to independent financial advisers, had 7,500 clients at the end of February. Their assets grew by about 50 percent over the past five years, to $1.55 trillion, Schwab said.
Cerulli also found that the independent RIA assets in 2015 grew at a faster rate than the overall industry average, 6.2 percent. “Meanwhile, the wirehouse asset base shrunk by 1.9 percent in 2015,” according to the Cerulli report.
For Schwab, working with advisers who left or are considering leaving full-service firms, the message is: Why do I need to work for someone else and have it define my relationship with my clients?
“More than 90 percent of advisers would make the decision again and are happier now that they are independent,” according to the Schwab study. Among new independents surveyed, the overwhelming majority told Schwab that “I am happier now as an independent adviser.”
Independent advisers said that their client relationships were better than when they worked at a wirehouse. About half of the new RIAs said working as a fiduciary is very important.
Some wirehouse reps have privately complained that they are forced to sell financial products — especially expensive in-house products — that are not appropriate for some clients.
Most advisers told Schwab they went independent “to gain the freedom to do what is best for the client.”
As an example of that, Schwab noted that many independents are increasingly selling exchange traded funds. ETFs tend to be among the lowest-cost investment products.