In a world where advisor transitions from the wirehouses seem to dominate the headlines, there’s a steady stream of independent advisor movement taking place in the background.
One might think that independence is the end of the road when considering change. But even these advisors (whether under a broker-dealer or RIA umbrella) have valid, strategic reasons for considering a change—and their motivations are quite similar to those of their wirehouse peers. For instance, their firm was sold, they’ve outgrown the platform, the technology isn’t sophisticated enough, the investment menu is limited, compliance is too onerous—and certainly many more reasons specific to an advisor’s business.
So, what makes their process of considering change noteworthy? Primarily, the solution set for these advisors differs greatly from that of W-2 advisors.
What options do independent advisors have when faced with the need or desire to make a move? Here are four compelling paths:
“Break-back” to an Employee Model
This is far and away the least likely option for independent advisors. Why? Because advisors are generally loath to go from a model that offers autonomy, freedom, and control to one that offers considerably less of each. Plus, there are economic benefits of independent business ownership that advisors typically don’t want to forfeit by moving back to a W-2 channel. However, in the right cases, these types of moves make sense—and they’re not without precedent. Consider, for example, a sole practitioner advisor who is retiring within three years. They might move to a W-2 firm if that firm can provide a quality successor, and it would come with the added benefit of a lucrative recruiting deal and sunset package.
Independent Broker/Dealers
These firms, such as LPL Financial, provide advisors with a chassis to run their independent businesses. Most offer transition capital and come with the benefit of having a curated and plug-and-play platform. There are important differences from one IBD to another, so while this type of move is “lateral” (in the sense that it doesn’t represent a model change), it can solve for a myriad of pain points by offering better economics, a stronger growth engine, superior technology, etc.
RIA Platforms
In the last five years, platform firms (also referred to as supported RIAs) have become quite possibly the hottest model on the Street, with new versions and flavors continually popping up. The gist of these firms is simple: they allow advisors the look and feel of an RIA but without many of the hassles of true RIA ownership. Advisors typically maintain their own DBAs (self-branding under the parent RIA), and the platform handles key middle- and back-office functions like compliance, technology, and HR.
Launch an RIA from Scratch
Launching a fully independent RIA firm is undoubtedly the biggest leap in terms of the amount of work and brainpower involved. So-called “do-it-yourself” independence means partnering directly with an asset custodian to launch, run, own, and operate the business. That means you, the advisor, are responsible for all functions associated with running the business. Many advisors choose to hire a full-time COO or outsource functions like HR and compliance so they can focus on client relationships and prospecting. The benefit of this move is maximum autonomy and control—for example, you never have to worry about “firm management” making the wrong decision ever again because that responsibility rests on you. The downside is that it’s a heavy lift and requires some scale to do right.
There are viable options for independent advisors considering change—and that’s a great thing for advisors of all types. It means that if advisors feel limited in any way, there is likely a firm or model out there that could move the needle. That’s not to say that all independent advisors need to or should make a change, but instead that advisors have a world of choice before them should they desire change.