Displaying items by tag: advisors

According to recent SEC filings from LPL Financial and Cambridge Investment Research, it’s clear that M&A activity remains robust. Lately, it’s the independent broker-dealers that have been the most aggressive in terms of dealmaking. 

For instance, LPL Financial revealed that it made 19 acquisitions in 2023 using its ‘liquidity and succession’ program for a total of $190 million although this could rise as high as $297 million depending if certain criteria is met. Currently, LPL is a leading broker-dealer with over 21,000 advisors. 

Previously, broker-dealers offered succession plans for retiring financial advisors. A new development is that these broker-dealers are buying up their own advisors’ books. The most notable recent example is LPL buying one of its own branches, Financial Resources Group Investment Services which managed $40 billion in assets. 

The catalyst for this trend is the entry of private equity buyers into the marketplace which is increasing pressure on independent broker-dealers to retain the books of their existing advisors. According to Carolyn Armitage, an industry consultant, “Private equity buyers are willing to pay more for those assets. A firm like LPL also has a big advantage since they self-clear and that’s a more diversified way to earn money on those assets.”

Finsum: The M&A market for financial advisors’ practices remains heated. Private equity buyers are a new force and willing to pay large multiples. It’s forcing independent broker-dealers like LPL to be aggressive in order to ensure that existing advisors’ assets don’t migrate to a different platform. 

In 2023, despite upheaval in the banking sector particular with the key industry figure First republic, advisor recruiting remained robust, indicating resilience in the financial advisory industry. 

The tumultuous environment in banks likely spurred advisors to seek stability and growth opportunities elsewhere. This trend is expected to continue in the current year, with more advisors exploring moves to firms offering better support and prospects for their practices. 

The allure of independence and the ability to provide personalized service to clients continue to drive advisors away from traditional banking institutions. Firms that prioritize advisor support and flexibility are likely to attract a significant share of talent in the upcoming months. Amidst ongoing industry shifts, the importance of robust support systems and adaptable business models cannot be overstated for both advisors and the firms competing to recruit them.

Finsum: Advisors are making changes in 2024 mirroring the flexibility desired in many other job categories. 

While portfolio construction is crucial for achieving client investment goals, it's merely one facet of a successful financial advisor-client relationship. A deeper understanding of the client's life circumstances and how their investment objectives fit into their overall financial picture is equally important for fostering trust and long-term engagement.

Time constraints often lead advisors to outsource portfolio construction, allowing them to dedicate more time to relationship building. Delegating this task can prove to be a win-win for both parties. The client gets professional investment management from an entity whose sole job it is to maintain their portfolio. And the advisor has more time to be there for their clients when they truly need them.

However, even with outsourcing, advisors must understand the client's portfolio construction and ongoing management comprehensively. Overreliance on outsourced services can lead to losing track of the intricate details of the investment process.

Ultimately, the client relies on the advisor to bridge the knowledge gap between their financial goals and the details of portfolio implementation. By remaining knowledgeable and engaged, advisors can effectively represent their client's best interests and build a robust and enduring partnership.

Finsum: Advisors outsourcing portfolio construction benefit from more time to build client relationships, but they still need to keep up with the details of the investment management of client accounts. 

The financial advice industry is going to go through major changes over the next decade due to demographics and an evolving culture. The average financial advisor is 65 years old and thinking about retirement and succession planning rather than growing their practice. For younger advisors, it presents a unique opportunity to advance their careers.

David Wood, the founder and chief visionary officer of Gateway Financial Partners, remarked that “There’s an overwhelming need for advisors to pick up some of these practices from retiring advisors.” Gateway Financial is a hybrid RIA with more than 170 advisors collectively managing $6.5 billion. Lately, the firm has been focusing on helping its independent advisors grow their practices through acquisitions. 

Wood believes that this is “the best time ever to be in the financial services space”. He believes that the demand for financial advice has never been higher, while a third of advisors will be retiring over the next decade, creating a vacuum for younger advisors. 

He also believes the culture is changing which will open up more opportunities for female advisors to thrive. Specifically, the industry is evolving from a focus on selling products to forming relationships and financial planning. Currently, women account for 30% of advisors, he expects that this number will increase over the next decade due these changes and the retirement wave of older, predominantly male advisors. 

Finsum: There are two major changes in the financial advice industry. One is that a third of advisors will retire over the next decade. The second is that the industry is evolving from selling products to building relationships and financial planning. Here’s why this is creating an opportunity for younger and female advisors.

Following the collapse of First Republic, many believed that there would be a negative impact on financial advisor recruiting. However, this concern was unfounded as more than 9,600 experienced advisors switched firms last year, which was a 7.5% increase from 2022 according to a report from Diamond Consultants. 

Jason Diamond, executive VP of Diamond Consultants, authored the report. He considers an experienced advisor to be one with a minimum of 3 years of experience. He believes that the healthy recruiting figures reflect that advisors are ‘taking a long-term view of the business in terms of what move will best position them for the next five years, not just today.” 

The two biggest moves were a team from UBS, managing $5.5 billion in assets, moving to RBC, and a private banking group at Bank of America, advising on $4.5 billion in client assets, joining Fidelis Capital, an independent wealth management practice. 

Most moves were within the same channel, such as wirehouse to wirehouse, even though many headlines focus on large teams going independent. For 2024, expectations are for another strong year of recruiting, although weakness in financial markets could lead to less activity. Many wealth management firms now offer multiple affiliation channels for incoming advisors. Additionally, private equity has also been getting more involved which has also pushed valuations higher. 

Finsum: Many thought that financial advisor recruiting would drop off in 2023 following the collapse of First Republic. However, this was incorrect as recruiting was up 7.5% compared to 2022. Expectations are that recruiting in 2024 should be strong as well.