On Advice

Wall Street is going RIA-ish

Big firms are creating business models that kinda, sorta look like an RIA for advisers

Jul 1, 2019 @ 5:28 pm

By Bruce Kelly

The purpose of Wall Street is to chase, create and sniff out profits. By its nature, the Street will always move to where the money goes.

In the financial advice industry, money and margins are moving slowly and inexorably away from the bank-owned wirehouses to independent registered investment advisers, along with other business models that either pay more or give advisers equity in their practices.

When advisers leave Wall Street to start or join an RIA, they get a higher payout, greater control of the relationship with the client and the ability to own a business that could potentially be quite lucrative when they retire.

Recent events show that the four bank-owned wirehouses — Merrill Lynch, Morgan Stanley, Wells Fargo Advisors and UBS Financial Services, the heart of Wall Street's wealth management industry — are trying to figure out how to walk, crawl or perhaps tiptoe into the independent RIA marketplace.

At the same time, these four firms are making strategic moves to harness their roughly 51,000 brokers and financial advisers to the mother ship and make it less desirable to walk out the door and open their own firm.

In other words, Wall Street is going RIA-ish.

Leaving Wall Street to launch an independent RIA is clearly not a career path many financial advisers at the wirehouses want to take.

With that in mind, the banks and wirehouses are trying to figure out how to move into the RIA business, and they are doing so in a variety of ways.

Let's look at a couple of numbers.

The independent and hybrid RIA channel has increased its adviser head count to 63,000, up 21%, in the five years ending in 2018, according to industry research firm Cerulli Associates. In the same time frame, the number of RIA firms grew from approximately 15,500 to nearly 17,000, according to Cerulli.

Wall Street is leaking financial advisers, including advisers who are among their largest and most profitable. These veterans can't be replaced, so banks and wirehouses are creating business models and tools that kinda, sorta, maybe if you squint a little, look like an independent RIA for advisers.

Some big banks are being quite deliberate in their efforts to add an RIA arm to their platforms.

In May, Goldman Sachs, the most formidable investment bank on Wall Street, said it was buying a leading RIA network, United Capital, for $750 million in cash. The move gives Goldman an opportunity to reach more high-net-worth clients, namely those with $1 million to $15 million in assets.

Wells Fargo Advisors is also making a purposeful move to building an RIA business. Wells Fargo & Co., the bank parent of the wealth management group, has been struggling with client-related scandals, which has affected the morale of many advisers, with hundreds leaving over the past few years.

At the start of this year, Wells Fargo Advisors broadened its platform to allow its reps to work as registered investment advisers, a move its three wirehouse competitors have not yet made.

How has it gone so far?

"We launched this program with a build-and-learn approach and we are on target with our expectations," said Wells Fargo Advisors spokesperson Shea Leordeanu. "We've on-boarded practices managing $1.4 billion in assets, with additional practices managing $2.2 billion on track by the end of the year."

Meanwhile, those banks' competitors are making additions or changes that give them more of the appearance of an RIA.

Merrill Lynch wealth management chief Andy Sieg has said that it is not the firm's intention to create an RIA channel. But near the end of last month, Merrill said it was bringing a highly popular performance reporting technology platform to its elite Private Wealth Management advisers.

As my colleague Ryan Neal reported at the time, the platform, Envestnet Tamarac, is already immensely popular with RIAs. The move begs the question, could partnering with a technology like Tamarac provide Merrill Lynch and other wirehouses with more firepower to keep advisers from leaving to work at an RIA?

Morgan Stanley has not made public any intentions to mimic Wells Fargo Advisors or Merrill Lynch. But at an industry event in New York last month, its head of wealth management, Andy Saperstein, said it was betting on giant teams of advisers generating big amounts of annual revenue to drive growth.

"I expect that the productivity of teams at this firm will increase dramatically," he said. "It won't be long before you see teams with production of $50 million and someday even $75 million or $100 million."

Those teams certainly sound like giant RIAs breaking away from Wall Street.

UBS Group this year has said it will focus on widening its platform for its richest clients, and in January it promoted company veteran Jason Chandler to head of wealth management in the U.S. While he's no doubt keeping an eye as his competitors embrace or flirt with the RIA marketplace, Mr. Chandler's plans for the space are far from clear.

"The RIA model is an attractive opportunity as RIAs continue to steal market share from larger firms," said Marina Shtyrkov, an analyst with Cerulli. "Advisers are continuing to choose control and flexibility over the traditional model. At the same time, firms are trying to find ways to give advisers more flexibility. One way to do that is expand ways for advisers to affiliate."

"The questions is, how do the big banks couple the mindset and appeal of an independent with the horsepower of a national firm with its technology, marketing and back-office support," she asked.

Good question. In the coming months, Wall Street banks will undoubtedly provide more answers.


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