Financial advisors waiting to break away from their current employer may have to cool their heels a little longer thanks to the government shutdown.
Having reached its 22nd day, Washington’s government shutdown is now the second-longest funding lapse in modern history. The SEC is operating at minimal staffing levels and has reportedly suspended reviewing and approving initial RIA registrations, meaning new approvals cannot occur until the government re-opens. Typically, breakaway teams align their SEC approval closely with their planned resignation dates.
Mike Papedis, CEO of Fusion Financial Partners, says the shutdown effectively puts a planned transition in a state of "suspended animation" until the SEC fully re-opens.
“I cannot recall a time, such as this, when branch managers across the country are enjoying peaceful Friday afternoons, as there is no concern about a team leaving to open a new registered investment advisor firm,” Papedis said.
The biggest impact is clearly for those firms that are in the latter stages of a breakaway, since the timelines for informing clients and filing the necessary regulatory paperwork has undoubtedly shifted. That has got to be nerve-racking for the teams themselves, since these are often confidential processes.
And the longer they go, the more chance they have of something going wrong, according to Dirk Hall, chief operating officer at Ballast Rock Private Wealth.
“Breakaways, when done right, do take some time, so ones that are in the earlier stages will likely not be affected that much. And, in the unlikely event that this drags on even longer, advisors will have a lot more to worry about than a breakaway,” Hall said, adding that “the client implications will surely build.”
On the bright side, however, since the shutdown began roughly 3 weeks ago the S&P 500 has continued to hit new record highs. The market’s strong performance should reduce some of the uncertainty felt by those advisors waiting to jump ship.
That said, Gary Dorfman, CEO of Thryve Wealth Management, says not even the market’s magnificent gains will fully pacify the anxieties of those advisors waiting, often secretly, to escape their current circumstances.
“There is always that period between when you make the decision to break away and when you actually launch your firm when you worry that news will leak or your firm will somehow interfere. To the extent breakaways don’t happen because of these regulatory delays, you run the risk of complicating an already difficult process,” Dorfman said.
While the shutdown may postpone transitions to independence, it does not impact the overall trend of advisors moving from large financial firms to independent business ownership. Motivating factors such as autonomy, client prioritization, equity creation, and value alignment remain influential.
Fusion’s Papedis points out that the SEC registration delay is temporary and does not affect the reasons wirehouse advisors are interested in the RIA marketplace.
Stressed Papedia: “This shutdown is a hurdle, not a wall.”
Similarly, Ballast Rock’s Hall, says the shutdown doesn’t change all the rationale for why an advisor should seek independence, or why they should pursue a sale or merger with another firm. In his opinion, it should actually spark more advisors to want to make the jump.
“Big disruptions like government shutdowns are a reminder that successful firms need to be nimble and flexible. Large firms don’t get any benefits from scale in cases like this. If anything, they’re in worse shape because the bigger the size, the bigger the disruption. Smaller, independent businesses are better suited to handle temporary hiccups,” Hall said.
Finally, Thryve’s Dorfman, draws a parallel between the bureaucracy in Washington and those at wirehouses and large banks. In his view, the current shutdown in the nation’s capital only serves to remind advisors of the reasons why they made the decision to go independence in the first place.
“Advisors who are deciding whether to be an independent firm have a lot to consider, however worrying about the impact of a shutdown shouldn’t be one of them. The real focus should be on how independence will add long term value how they can deliver added value to their clients,” Dorfman said.
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