Waxelbaum, Terrana And Stuvland Address The Motivations And Concerns Of Wirehouse Breakaways And Steps To Embark On Independence
Wealth management contains a unique, complex structure that often mystifies outsiders, especially when it comes to the various business architectures and possibilities extended to successful advisors. While many advisors prefer W-2 arrangements with large, well-branded enterprises, some find themselves in a career trajectory as a wirehouse employee and want to redirect that toward independence.
In this article, we explore the reasons why wirehouse advisors would want to go independent, what factors hold them back and ways they can address those concerns.
Control, Ownership, Flexibility And A Pain Threshold
One of the primary reasons advisors choose to leave wirehouses is control. tru Independence Founder and CEO, Craig Stuvland, says, “They want to own their future and the future of their clients to create their own corporate structure, providing ownership for next-generation advisors, attract other advisors, and control their exit or succession strategy with multiple options.”
In the same vein, Michael Terrana, CEO of Terrana Group, says that advisors exploring independence want “to run their business, their way, while not being managed by the lowest common denominator.”
Terrana adds that advisors want to own their business and receive greater income at the end of the day, “Obtaining true ownership, and large enterprise value in their book of business is a big motivator. Advisors in the independent space manage their own P&L and ultimately have much greater net take-home payouts that hit their bank account compared to net compensation at any wirehouse.”
Stuvland notes other factors that motivate wirehouse advisors to break away include the ability to create their own brand and the flexibility to engage in outside business activities, create their own products and services, and use a wide spectrum of marketing tools. He adds that advisors also want access to “independent institutional investment solutions, capital markets, independent trust services, and superior technology – expanding and enhancing the client experience.”
Phil Waxelbaum, Founder and Principal of Masada Consulting, points out that while the benefits of independence are known, there’s one additional factor: “Higher payouts, no lowest common denominator supervision, self-branding, flexibility in marketing and the big prize of client and enterprise ownership are implicit. Still most advisors don’t make the leap until there is a ‘push’ event. There typically must be a point, or totality, of pain so great that its intolerable. It’s all about a tipping point in being an employee and all advisor pain thresholds are different.”
Fears About Keeping Clients And Building A Business
Stuvland says a key question giving pause to advisors is, “Will my clients follow me?”
Terrana agrees. “The biggest concern at the forefront is the financial risk that you may lose any part of your client base.”
In addition to concerns about client retention, Waxelbaum points out that advisors worry about building the business. “Few employee advisors know where to start in building the necessary local infrastructure. The concept itself is intimidating for career W-2 advisors.”
Terrana sees this fear generating false value. “The familiarity of a wirehouse having most of the business process laid out for you contributes to the false sense of value advisors get from working for a big name broker-dealer.”
Waxelbaum notes that concerns about establishing a business are “addressed by demystifying what is truly required and through support structures demonstrated. Many firms employ third party experts to aid the advisor to get up and running. Of late, breakaway advisors are progressively embracing the SWS program at LPL and the PWS offering at Kestra. With nuanced differences in approach, both of those programs take infrastructure completely off the advisor’s plate.”
He also says that client retention concerns are primarily met through education and conversation with advisors who have already transitioned to independence. “Once advisors fully understand the independent options, they get equally comfortable the clients can be shepherded without issue.”
Stuvland points out that, “Statistically, because of the trust an advisor has built with clients – over 95% want to maintain their relationship and move to independence with their advisor.”
Terrana recommends extensive planning. “Advisors need to draw up a business plan, outlining and strategizing what it takes to run their practice and the overall business. Additionally, a well thought out plan for client transition and support for onboarding are critical.”
Taking The Right Steps
Stuvland notes that in addition to their typical concerns, advisors must prepare for the legal aspects of a transition. “Hire competent legal counsel to guide you through the process. Advisors who abide strictly by the rules are successful in moving away from their wirehouse firm.”
He also recommends thorough due diligence. “Educate yourself on the core services you will need to be successful. Due diligence should lead to a partner who can support you in navigating the decision-making process – guiding and coordinating all the moving parts before and after transition – and can help you set up and grow your business.”
Terrana says advisors should hire a transition consultant. “Aligning with the right independent partner firm along with the right transition will improve the quality of your overall life and practice, and put you on a trajectory of business growth to obtain large enterprise value in your business.”
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at firstname.lastname@example.org.