On Recruiting

We need a new vocabulary in the wealth management industry

Attempting to define all firms as wirehouse, independent or regional is as accurate as saying all ice cream is chocolate, vanilla or strawberry

Aug 12, 2016 @ 11:30 am

By Danny Sarch

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It seems to me that the wealth management industry has grown out of the traditional labels that we have used for decades to describe various companies, causing tremendous confusion for both clients and industry insiders. Let's take, for example, the term “wirehouse.” The term was originally meant to describe an investment firm which had multiple offices which communicated with their home office via “wire.”

Clearly this definition is archaic. However, if you ask anyone in the wealth management industry to list the wirehouses today, a vast majority would give you the names of same four firms: UBS, Merrill Lynch, Wells Fargo and Morgan Stanley. After all, these are the largest, right? Well, no. Ameriprise is larger than UBS and Edward Jones has more branches, if not more advisers, than all of them (though their business model is one adviser per branch). Perhaps these are the national firms, you say, and therefore need to be labelled as wirehouses. Well, no. Ameriprise and Edward Jones are also national. So is Raymond James, with a total number of advisers almost equal to UBS.

Well, we just know that these are the four wirehouses, so let's just continue to call them that even though we don't really know why. So then how do we define the others that are as big as those four? Historically, Raymond James has been called a regional firm. They are based in Florida, but now they are in every state in the country. How is that “regional”? Other so called regional firms like Janney Montgomery Scott and D.A. Davidson are truly regional; they have locations in a defined geography close to their respective headquarters.

So how do we accurately label Ameriprise or Raymond James? They are not one of the Big Four wirehouses even though they are of similar size and are much larger than Janney or D.A. Davidson. Nobody actually lobbies the industry trade press to be called a wirehouse; those firms would view the wirehouse label as pejorative. Thomas M. Walrond, the Chief Operating Officer of Raymond James & Associates (the employee channel) did a great job of summarizing when we spoke: “The historical descriptors of wirehouses, regionals and independents have been leveled by technology, regulation and time. I think advisers today are more focused on the firms themselves and what they offer in terms of adviser support and culture.”

The other label which has grown nebulous in the wealth management industry over the last several years is “independence.” Back when the only way to reach a large population of advisers (then called stock brokers) was in the back of trade magazines' classified ads, going independent meant opening up your own firm with LPL. LPL is now public with as many advisers as the largest wirehouse, but they are not a wirehouse; they are a firm of independents. Now there are dozens of independent broker-dealers that do the same thing.

Others argue that true independence means having a multi-custodian, open architecture platform, like a traditional RIA. HighTower, for example, initially built their firm with breakaway wirehouse advisers who wanted independence. The platform was and is multi-custodian, while the advisers act as fiduciaries. Yet those partners were and are W-2 employees of HighTower who own their own practice but not their own business. HighTower now gives recruits an option to join an independent platform as a W-2 employee or to become an independent business owner on that very same fiduciary platform.

To Michael P. Parker, HighTower's chief development officer, it is all about giving the adviser the ability to choose both the right business model and the right services for his or her clients: “Within the category of 'independent adviser,' there is a wide variety of needs and preferences when it comes to business model. Some advisers want to own and run their own businesses. Others prefer to operate under the umbrella of a larger firm, but don't want to be limited when it comes to choices of custodian or product. Independent advisers can affiliate with HighTower and access our platform in whatever way best suits their needs and goals.”

The independent business owner on the HighTower platform is certainly more independent than the W-2 HighTower partner. Yet the same “I” word is used to denote a business structure (W-2 or 1099) and an investment platform. If both are valid examples of independence, even while meaning different things, perhaps the terminology needs updating.

The industry has evolved to give advisers choices of where to work which appear to be as numerous, sophisticated and nuanced as the solutions that advisers offer clients. Attempting, therefore, to define all firms as wirehouse, independent or regional is as accurate as saying all ice cream is chocolate, vanilla or strawberry.

Why does any of this really matter? It matters because the majority of industry's top producers grew up in the wealth management industry when the only flavors were chocolate, vanilla and strawberry. The shrewd adviser who is looking to fix something about his or her current environment platform or business model will take the time to learn about the nuances of the new models to the benefit of both their clients and their families.

Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.

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