Advice for Advisors Looking to Make a Fresh Start

As RIAs continue to strike out on their own, they need to acknowledge some harsh realities.

Illustration by II /Bigstock photo

Illustration by II /Bigstock photo

Is this a trend with no end?

About 27,000 advisors— almost 9% of the 310,000 in the industry—changed jobs last year, according to a Cerulli Associates study. Many RIAs are moving from large brokerage houses to boutique firms and launching independent shops. The survey says 45% of wirehouse and regional advisors have considered going independent.

“The appetite for independence (for RIAs) continues to grow,” notes Marina Shtyrkov, a Boston, Mass.-based research analyst at Cerulli Associates. She says autonomy is one of two major factors driving defections to boutiques and one- or two-person shops. “They want more control over how they run their business.”

Secondly, RIAs want a much bigger piece of the pie. Instead of being compensated by say 40% to 60% of fees, they can have all of it, minus the cost of doing business.

Shtyrkov notes that advances in technology are making it easier for RIAs to set up shop and customize their tools. “You can pick and choose from financial planning tools to data aggregation tools, but at most broker dealers, you have more restrictions.”

Shtyrkov observes that many RIA defectors recoil from the “top-down management” style that often dominates the larger firms. “A successful advisor wants to be able to run their own practice as they see fit,” she says.

Patrick Brewer, founder and CEO of Austin, TX. -based SurePath Wealth Management, which oversees $60 million in assets, was surprised the turnover rate isn’t higher. Working independently or at a boutique firm, the RIA “owns their own business, owns the relationships, gets higher payouts and gets better access to technologies,” he says, compared to the often-outdated tech infrastructure at wirehouses. Moreover, they don’t face the same stringent SEC compliance regulations.

Brewer’s firm created a shared infrastructure model, which helps RIAs devise a tech platform, compliance process, marketing, and sales collateral to attract new clients. RIAs own their clients but pay an agreed upon fee of 10% to 50% to help defray shared marketing costs.

However, many RIAs confront harsh realities when they go independent. “Sometimes advisors underestimate how difficult it can be to leave all of this support and resources and have to set up their own office space, IT system and computer, account transfer systems, etc,” Shtyrkov notes, though firms like Focus Financial Partners and HighTower Advisors are RIA consolidators that help with those technological transitions.

Furthermore, non-disclosure agreements at most large brokerage houses prevent RIAs from bringing their former clients with them, which means they have to start anew to find clients.

But for some RIAs autonomy trumps all.

Take 33-year-old Aaron Parrish, who launched Level Wealth Management, a one-person financial advisory service, in Greensboro, N.C. in March. He oversees $8 million in assets, a far cry from the $600 million under management at his previous firm.

Though Parrish speaks well of his former firm, he felt “stretched too thin” there. He worked with about 150 clients and handled approximately $100 million in assets. Now he’s aiming to limit his client base to no more than 80. This will enable him to provide more personal advice and have more frequent conversations.

Most of his former clients paid the same 1% of portfolio fees, so the clients with larger assets received essentially the same service as the ones with smaller investments. At Parrish’s new firm, he’s charging a $1,200 fee per quarter that covers financial planning, investment management and tax planning.

When Parrish suggested experimenting with different fee structures at his former firm, he was told that was untenable because it would result in the firm cutting its revenue by a substantial percentage.

Parrish took a handful of clients that he had agreements with before his previous firm, but for the most part, he’s marketing his firm to generate new clients.

For example, he’s running an educational financial seminar at a local college to get his name and business out, talking with CPAs and estate attorneys, and tapping social media.

Is the high RIA turnover a blip?

“I’m not sure if the percentage will always be 9%,” says Parrish. “But it’s inevitable that a certain percentage leave. You’ll never make everyone happy, just as it is, with clients.”

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