RIA Roundtable: Takeaways From The Ongoing Turmoil In Regional Banking

Chris Latham, Managing Editor, Wealth Solutions Report

Harry Grand Of Angeles Wealth Management, Stan Gregor Of Summit Financial And Jared Chase Of SEIA Explain Why The Regional Banking Crisis Demonstrates The Advantages Of RIAs And Independent Financial Advisors

The sharp succession of Federal Reserve interest rate hikes, enacted to fight rampant inflation, has contributed to ongoing turmoil in regional U.S. banks. Starting in March, rapid-fire failures of Silicon Valley Bank and Signature Bank in the U.S. were followed by the bailout of much larger global bank Credit Suisse by the Swiss National Bank.

First Republic Bank experienced massive deposit outflows, rating agency downgrades of its credit to junk, an utter collapse in its stock price, government seizure and forced sale to JPMorgan Chase. Meanwhile, First Republic advisors left for RBC, Rockefeller Capital Management, Morgan Stanley and other firms.

Other regional banks that have experienced deposit outflows and massive stock price swoons over the past three months include PacWest, Western Alliance, Zions and even larger institutions such as Charles Schwab.

To understand how these shakeups may impact RIAs and independent financial advisors, this WSR roundtable gathers insights from Harry Grand, a Partner and Head of the New York Office at Angeles Wealth Management; Stan Gregor, Chief Executive Officer at Summit Financial; and Jared Chase, Director of M&A and Business Development at Signature Estate and Investment Advisors (SEIA).

Harry Grand, Partner – Head of New York Office at Angeles Wealth Management

Harry Grand, Partner – Head of New York Office, Angeles Wealth Management

Much like the financial crisis of 2008, the recent banking turmoil is a wakeup call to investors and wealth advisors. Clients served by legacy financial institutions and regional banks are experiencing heightened anxiety as skepticism and renewed awareness of banks’ balance sheets, specifically around cash and deposits, have emerged after witnessing the demise of Silicon Valley Bank and First Republic.

Clients at larger financial institutions are seeking greater transparency regarding potential conflict of interests between banks’ various business services and fees, and whether or not their advisor is truly acting in their best interest.

At Angeles Wealth, we believe the future of the independent RIA channel is poised for growth after seeing the fallout of the banking turmoil. Here’s why: Clients being served by larger banking institutions will likely seek independent advisors and RIAs who are not tied to a specific bank or financial institution.

As we have seen with JPMorgan acquiring First Republic, and First Citizens Bank acquiring Silicon Valley Bank, there will likely be continued M&A and industry restructuring. Financial institutions facing challenges may be acquired or look to divest or consolidate their noncore businesses, which could include wealth management divisions.

This has and will most likely continue to create opportunities for RIAs to acquire both talent and clients. The fiduciary model – the DNA of the RIA channel – will continue to be an attractive model that provides the desired need for transparency, objectivity and client alignment.

From a regulatory perspective, there may be new rules and regulations to enhance transparency, risk management and consumer protection. While these changes may be pointed at the larger financial institutions, they also can impact the independent RIA channel. RIAs may need to adapt their practices and comply with additional regulatory requirements.

Stan Gregor, Chief Executive Officer, Summit Financial

Stan Gregor, CEO, Summit Financial

It is rather amazing that we find ourselves back in the same position as we were in 2008. It is true that this time it seems to be small to midsize banks at risk and the larger banks seem very secure and stable. What is different this time is that many of the banks, like First Republic and Silicon Valley Bank, have bought advisory businesses, attracting very large and successful advisory practices.

The implication of this activity is twofold. One, those advisors are scrambling to find new homes and, two, the confidence of their clients in the institutions the advisor has affiliated with is shattered. This further validates the value of being an independent advisor in an RIA.

Typically, within an RIA, client assets are custodied within some of the strongest financial institutions in the world. That gives the client peace of mind. For the advisor who has had their world upended, being part of an independent RIA means that they control their destiny rather than some amorphic corporate entity.

As part of an RIA, they get to focus on what is truly important … the client. Advisors have access to some of the best technology and products in the industry, which they select. In addition, as advisors run and grow their businesses, they are actively creating a valuable asset and building substantial net worth for themselves and their families.

For advisors who find the prospect of independence daunting, the right path may be to join forces with a firm dedicated to a partnership model. Partnered independence provides all the benefits of independence along with a robust support platform without fear of a larger takeover or collapse. If this banking crisis has taught us anything it is that the advisor needs to be the steward of their destiny.

Jared Chase, Director of M&A and Business Development, Signature Estate and Investment Advisors

Jared Chase, Director of M&A and Business Development, SEIA

Recent bank failures have caused stress in the financial sector, which contributes to our cloudy outlook on the economy. Economic activity will likely continue to slow in the coming quarters, with tightening lending standards and credit that is harder to come by. The current economic weakness coupled with recent events at regional banks doesn’t paint a rosy picture.

That said, even with the current issues at the regional banks, there will always be headwinds to face. RIAs are in the best possible position to make strategic moves for their clients. SEIA actually saw assets grow during this crisis as clients pulled cash from their regional banks and placed them with us to thoughtfully manage.

There is a reason why the number of SEC-registered investment advisory firms continues to rise year after year, and we don’t expect that trend to slow down anytime soon. Clients prefer the fiduciary RIA model as it allows us to provide tailored guidance and advice.

SEIA, whether it’s within one of our discretionary models or in a customized solution in a non-discretionary account, has a thoughtful approach to investment management.

Chris Latham, Managing Editor at Wealth Solutions Report, can be reached at clatham@wealthsolutionsreport.com

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