As the United States recently celebrated the Fourth of July, the event brings to mind the true meaning of independence and freedom also for financial advisors. The ability to act and think without restraint is a concept that ignites the entrepreneurial imagination of many. However, in the wealth management industry, dominated by big firm culture and increasing regulations, achieving true independence can seem like an uphill battle.
Top firms continue to delve deeper into heavy compliance and oversight measures. While this shift stems from a new cultural paradigm and the need to address SEC regulations in the wake of mishaps and bad actors, it has resulted in a continual loss of personal freedom. Consider the recent example of JPMorgan Chase, which introduced the “WADU” initiative, a workforce activity data utility that monitors employees’ every move, even when working remotely. This invasive system utilizes biometrics to track facial expressions, background details, conversations, and keystrokes. Financial advisors across all firms have already been compelled to surrender their personal cell phones for review. Even harmless personal social media posts, like a picture in a bathing suit, can be scrutinized and subject to reprimand by firms like Morgan Stanley – true story.
Compensation structures are also rapidly changing, leaving advisors uncertain about their future earnings. Firms like Merrill Lynch continuously modify their compensation grids, creating an environment where advisors are forced to accept these changes or seek employment elsewhere. Moreover, the unpredictability surrounding compensation packages makes it difficult for advisors to plan for their financial future. In big firms, everything remains fluid, and uncertainty becomes the only constant.
It is often said that freedom comes with a price. While big firms provide frameworks and systems that streamline certain aspects of the business, the cost is relinquishing a portion of revenue share. For advisors who believe that the services offered by these firms are not worth the price, pursuing independence becomes an appealing option. Many advisors now feel trapped within the confines of their firms, uncomfortable with the surveillance and oppressive cultures that are evolving. If you are unwilling to face overbearing managers, constant oversight, phone monitoring, and an environment that feels robotic, it is worth considering the potential benefits that independence can offer. However, it is crucial to have a clear understanding of the compromises you are willing to make and the associated costs. As with most decisions in life, choosing independence involves trade-offs.
Here Is a concise list of key considerations when assessing the role of a financial advisor versus that of a financial advisor and business owner:
- Support levels: When transitioning from a wirehouse to independence, various levels of support are available. Some platforms offer nearly the same level of assistance as large broker/dealers while allowing you to own your own business. Alternatively, if you opt to establish your own Registered Investment Advisor (RIA) without platform support, you can outsource most services that you prefer not to manage yourself. Take the time to determine which aspects of the business you genuinely enjoy and those tasks you would rather delegate. At a big firm, most of these responsibilities are handled for you.
- Entrepreneurial mindset: Owning and operating your own RIA requires an honest self-assessment. Are you an entrepreneur at heart? Consider taking self-assessment tests like 16Personalities to gain clarity. Entrepreneurship demands a wealth of ideas, vision, and creativity. It also entails being humble and embracing the steep learning curve associated with unfamiliar tasks. Successful entrepreneurs excel at asking pertinent questions and persistently seeking solutions. Technology is constantly evolving and can be frustrating. Are you prepared to manage the challenges it presents? Objective introspection to determine if you possess these qualities is crucial for making an informed decision about owning your own RIA.
- Spectrum of independence: Independence for financial advisors exists on a continuum. The highest level of freedom is achieved by owning your own RIA with a supported trading platform such as Charles Schwab & CO, Inc., Pershing, or Fidelity. Intermediate options are available through intermediary firms that provide similar structures to big wirehouses while allowing you to own your RIA. However, if you prefer having all tasks handled by the firm in exchange for a significant portion of your revenue, big wirehouses remain an option.
- Economic considerations: Many advisors question why they would decline a recruiting deal offering more than 300% of their current compensation. However, there are compelling reasons to accept a short-term loss for long-term gains. These include higher ongoing payouts, the ability to monetize the business for long-term capital gains at multiples, and the freedom to manage your practice and clients according to your own preferences, free from the scrutiny and restrictions imposed by large corporate firms.
- Personal decision: The meaning of independence varies for each advisor. Just as there are different levels of support provided by firms for advisors, there are also unique needs for personal freedom. As Advisor Consultants at The Gershman Group, we have worked with advisors across the spectrum. Assessing an advisor’s personality and matching it to the best-fit options is akin to a personality test. Some individuals possess an innate entrepreneurial drive and are only satisfied when owning their own RIA, while others require the structure and support offered by big firms, preferring to delegate certain responsibilities. Most advisors fall somewhere in between, and fortunately, there are numerous suitable solutions available to accommodate their diverse interests.
Remember, independence is not a one-size-fits-all concept. It requires careful consideration of available options, personal strengths, and preferences. As you embark on this journey, weigh the pros and cons, and choose the path that aligns best with your vision of true financial advisor independence. We’re here to help you.
As the Editor of The Gershman Group, a boutique financial services consulting firm, TGG brings expertise in financial analysis, strategic planning, and market research. With a keen eye for detail and a passion for helping businesses navigate complex financial landscapes, TGG delivers insightful, high-quality content to empower informed decisions. Backed by years of industry experience, TGG makes complex topics accessible through clear and compelling communication, shaping the firm’s thought leadership and commitment to excellence in financial services.
