Displaying items by tag: IBDs

(Washington)

One of the leading trade bodies of the brokerage industry has just put out an alarming, and frankly logical, warning. SIFMA says that a growing body of regulation is threatening to completely end the brokerage industry as we know it. In particular, SIFMA says the rise of state-based fiduciary rules is likely to lead to the “lowest common denominator” regulatory solution in many states. Instead of trying to navigate a complex network of rules, the solution is simply to say “we do not have brokerage in our state”. Many states may only have advisory accounts, which according to SIFMA will mean "Clients will have one choice they can buy, which in many cases will be buying more services than they wanted and having to pay more than they wanted to”.

FINSUM: So anyone in the industry will realize that trade bodies put out warnings all the time. What makes this different is that it seems highly realistic, which makes it quite troubling. The reality is that for many clients brokerage is the right model, so it needs to be defended.

(Boston)

Earlier this year (before the Schwab deal), TD Ameritrade put out an interesting report about breaking away. The report was centered on advisors’ motivations for breaking away as well as their likelihood of doing so. One of the most interesting findings is that as of July, 46% of advisors who were thinking of breaking away said that they had increased urgency since the start of the year. 44% said they would move within the next year. The main reasons were freedom, compensation, and client service, all of which they felt were better at an independent. Another key finding is that only about 36% of advisors wanted to breakaway on their own; most wanted to merge with another partner or join an established firm.

FINSUM: The breakaway movement is only gaining momentum. Wirehouses are shedding advisors and RIAs and IBDs are picking them up left and right.

(New York)

A lot of advisors have been going independent lately. Whether you are moving to start your own RIA or want to join a large independent broker-dealer network, there are a lot of intricacies involved with running your own shop. Before you even think about the logistics of moving, it is important to assess whether you have the skills to succeed. There are essentially three skills that one needs to become a successful independent advisor: operational experience, in-depth relationship management skills, and sales/business development acumen. Operationally, you will likely have a tight budget when first breaking away, so understanding the nuts and bolts of the business, like migrating client accounts, is critical. Secondly, you will need to be able to concisely define the nature and scope of your relationship with clients in order to keep them happy for the long-term. Finally, you will need to be able to convince people why they should manage your money (without the weight of a wirehouse brand behind you!).

FINSUM: As a companion to the above, Michael Kitces notes that most successful independent advisors had seven years experience before going it alone.

(New York)

Raymond James just reported earnings and alongside its figures, it also released its latest advisor numbers, and they were eye-popping. The firm has grown its advisor head count to over 8,000, up 198 since last September. Raymond James’ recent recruiting success seems to come down to two factors: big recruiting loans, and the fact that with Raymond James, advisors own the client. According to Raymond James CEO Paul Reilly, “I can’t remember seeing so many $5 million to $10 million [advisors] in the pipeline”.

FINSUM: Big recruiting payouts and letting advisors own the client is a pretty compelling (if expensive) way to recruit.

Going independent has many upsides and downsides, but listing them as pros and cons is not particularly simple. Sure, there are higher payouts than at a wirehouse, but there is also more responsibility. In some sense, it depends on the stage of your career as an advisor as to whether going independent is the right choice. If you are senior, with your own book of high paying clients and your own office/branch, then going independent can make sense. You get higher payouts and you already have experience managing a team, and you have more product flexibility for clients. If you are younger, going independent can be more difficult since you likely need more help building your book, and don’t have experience managing people or the overheads associated with running your own branch.

FINSUM: There does seem to be a “right time” to go independent. There are a lot of perks to doing so, but one does need to have a bit of an entrepreneurial slant as you truly are a business owner in such a scenario.