The big wirehouses are no strangers to evolution. The name, of course, speaks to a long-gone time when brokerage firms used dedicated telegraph and telephone lines to make transactions and monitor market prices. The internet blew that up, but wirehouses continued to diversify and offer a range of services and products. They remain pillars of our industry.
However, as Bruce Kelly explores in his outlook piece, there is a shift well underway among wirehouse advisors, with many leaving for the registered investment advisor channel, disillusioned by what they consider prohibitive pay grids and a lack of flexibility.
This change, in part, reflects an advisor’s evolving value proposition. There’s more need for financial planning than stock picking, while advances in technology mean it’s easier than ever to build your own tech stack and market yourself online. Clients arguably care less about having a storied brand behind them than their advisor’s ability to connect with their goals, be a confidante in tough times, and steer them toward the retirement of their dreams.
Put it this way: If you, as an entrepreneurial, ambitious advisor at a wirehouse, get to keep 40 percent of the $1 million in the annual revenue you generate, are you getting $600,000 in value from your employer? Does the support you receive around branding, marketing, real estate, product access, etc., compare favorably to the set-up in the RIA world, where you get the $1 million and pay out the expenses yourself?
Many advisors, it seems, believe they’re not being fairly compensated for their client-relationship skills and are opting for the latter. But let’s not be one-eyed; RIAs aren’t for everyone, and predicting the death of our big financial institutions is foolish. For a start, many advisors place a higher value on the security, intellectual capital, and robustness provided by large firms. You may also be at a stage in life where going it alone is simply not appealing.
There’s also an argument that the top RIAs are growing so fast that they’re going to become de facto wirehouses, with their own set of rules and restrictions. Be careful, too, not to discount the ability of big institutions, with all their resources, to adapt and change. As Bruce Kelly explains, tens of thousands of advisors still operate within this structure, benefiting from the name and significant marketing dollars.
But questions persist: How will the RIA landscape develop as more and more advisors seize independence, and, crucially, how will the wirehouses react to losing more top revenue producers? What’s clear is that the big institutions need to show advisors a rosier picture of the future to stop the current bleed of talent.
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