December 13, 2018

Big Name Converts to RIA Space Are Influencing Others to Join the Bandwagon

The breakaway movement of brokers going independent went into full swing in 2018 largely because of the influence of high-profile names deciding to make the change, insists Schwab Advisor Services.

Schwab Advisor Services saw more activity among newcomers in the advisory space with more than $1 billion in client assets in 2018 than it did in the previous five years, Tim Oden, Newport Beach, Calif.-based senior managing director for business development at Schwab Advisor Services, said at a media briefing Wednesday.

Although the full 2018 new advisor SEC registration data isn’t yet available, Schwab Advisor Services expects it to reflect a trend it started seeing in 2017.

Although the full 2018 new advisor SEC registration data isn’t yet available, Schwab Advisor Services expects it to reflect a trend it started seeing in 2017.

The number of new advisory firms registered with the SEC jumped by 20% to 238 in 2017 from 199 in 2016, and by 59% over the past five years from 50 in 2013, according to Oden.

Many of those new entrants have in excess of $1 billion in assets, according to Oden, who said “more sophisticated teams are moving now than ever before.”

In June, Dynasty Financial Partners announced the introduction of Dynasty Enterprise Group, a division within the RIA network focused exclusively on partnering with firms with client assets in excess of $1 billion.

“We are seeing significant demand from these large, complex RIAs, seeking assistance in order to drive change, increased profitability and modernization within their businesses,” Dynasty said at the time.

Among recent breakaways is Gary Hirschberg, who left Goldman Sachs – where he was responsible for $1.4 billion in client assets – to launch his own independent practice, Aaron Wealth Advisors, within the Dynasty network in September.

The “visibility” of having high-profile breakaways turn independent has emboldened more brokers to make the move, according to Oden.

“More of their reputable colleagues are in the space now,” he said. “The more voices that come out [in support of the independent space], the more reference points there are” for outsiders looking in.

A common phrase Oden hears from brokers who are just now considering moving to independence or are already in the process of doing so is, “I didn’t realize.”

According to Oden, these brokers didn’t realize that they could achieve the level of sophistication they had at their brokerages when going independent. They were unaware that they could get support from custodians, technology services and backoffice, and they were unsure their clients would follow them, Oden says.

“Advisors want to focus on revenue-producing capabilities,” Ryan Marcus, New York-based managing director at RIA network Aurora Private Wealth, said at the briefing.

Citing an example, Marcus said many advisors joining the independent space “don’t want to deal with SEC registrations; it’s time consuming.”

Paul Fegan, a Merrill Lynch breakaway who co-founded Navis Wealth Management in November, credits RIA network Sanctuary Wealth for helping it with the regulatory and operational challenges of the transition.

“The hardest part of a transition out of a wirehouse was setting up the new company, finding office space, etc. while still carrying on at Merrill as if nothing was happening. This is where Sanctuary took a lot of the work off of our shoulders,” Fegan tells FA-IQ.

“By coming under their SEC registration, we didn’t need to go through the hassle of getting Navis registered with the SEC while not drawing any unwanted attention to ourselves,” he adds.

Schwab Advisor Services’ Oden said “preparation is critical” to succeeding with the transition to independence, including the transfer of client assets.

Schwab Advisor Services’ informal survey of advisors shows that those in the independent space were able to take with them around 87% of their client assets at their previous firms, according to Oden.

Meanwhile, Oden said the exit of some high-profile firms from the Protocol for Broker Recruiting, and the fear of more firms leaving the pact, hasn’t really been a significant factor in the independence movement.

The departure of two major wirehouses — Morgan Stanley in November 2017 and UBS in December 2017 — from the broker protocol initially sent shockwaves through the industry, particularly among advisors contemplating jumping ship and other companies planning to hire from those and other broker-dealer firms.

Around 66% of advisors surveyed by Schwab Advisor Services from April to May said the broker protocol exits had no impact on their interest in going independent, while around 73% said it had no impact on the timing of their move.

More advisors (24%) were interested in accelerating their move to independence, however, compared with those who decided to slow it down (13%).

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