While equity and entrepreneurship sparked the breakaway trend over a decade ago, the emergence of supported independence platforms has opened the floodgates. What began with pioneers like Focus Financial and Hightower has evolved into a much more compelling value proposition for wirehouse teams.
Identical to any wirehouse back office and administration support, these independent service providers eliminate all the burdens of back-office operations, compliance and supervision, technology integration, payroll, billing and human resources. As with any wirehouse, this allows advisors to focus exclusively on what matters most: delivering cutting-edge, open-architecture investments for their clients.
Dynasty Financial, Sanctuary Wealth, LPL’s Strategic Wealth Services and NewEdge Wealth are just a few who are leading the next stage of the independent movement. They offer plug-and-play solutions for advisors accustomed to big-firm support but have zero stake or contractual interest in your business.
Others, including Concurrent, Elevation Point and Summit Financial, differentiate themselves by taking an equity stake. These firms will buy a portion of your practice at very attractive valuations, which helps to lock in value for the future.
Lowering the Barrier to Entry
Years ago, breakaway advisors had to reinvent the proverbial RIA wheel with every move. Teams spent countless hours researching options and negotiating contracts with dozens of vendors for compliance, legal services, technology suites, reporting systems and basic needs like telephone systems. Invariably, advisors never got it right the first time, but now professional consolidators called supported independence platforms barely charge 10% (versus 50% for a wirehouse) allowing advisors’ operating margins to average about 90%.
Even better, these platforms offer significantly more sophisticated technology solutions that far exceed the cumbersome, clunky and compliance-driven software solutions at any major bank. Everything is aggregated and consolidated for one simple login for the advisor workstation including reporting, CRM, portfolio management tools and aggregation software. The end client also has one simple sign-in with much greater user experience and visibility than most banks offer.
Advisors meanwhile have the freedom to run their practices without constant compliance alerts and guardrails because these firms do not need to address the lowest common denominator of their 10,000 advisors or the massive regulations imposed upon them from the alphabet soup of regulators including FINRA, FDIC, OCC, FTC, FRB, SEC etc.
This combination of freedom and flexibility has fundamentally altered the economic equation that wirehouses have long used to retain their top talent. For years, big firms convinced top producers that they needed to surrender half their revenue and put up with increasing deferred compensation and ever-decreasing payouts, but now better technology and better resources are available for a fraction of the cost. Sure, wirehouses also offer eye-catching recruiting deals worth 400% of production, but these come with front- and back-end hurdles, 13-year lockups and are taxed as ordinary income.
Many supported independence platforms also offer transition assistance, but the real earning potential is long-term. Advisors can take home 75% or more of their revenue as 1099 income after deducting platform costs, real estate, and salaries while owning 100% of their brand equity.
Over time, this blows away any wirehouse deal, especially when factoring in the superior technology and resources these platforms offer. Plus, clients have access to the same big-firm intellectual capital and market research such as at Goldman Sachs’ Independent Channel or from former Bank of America investment strategist Mary Ann Bartels, who now serves as Chief Investment Officer at Sanctuary.
The Value of Ownership
The equity factor represents perhaps the most compelling aspect of supported independence platforms. Advisors seeking some liquidity can sell a minority interest to these platforms for six to eight times earnings before owner compensation (EBOC). That sale is typically taxed as long-term capital gains. For example, a $5-million team should generate at least $3.75 million of EBOC and can be valued at over $25 million. If you don’t sell any equity today, consider the value that will accumulate in future years as the business grows.
Even more lucrative, these platforms eventually look to aggregate and sell to a large enterprise for multiples of 16 to 20 times EBOC. Advisors typically have tag-along and drag-along liquidity rights giving them the chance to participate in that event. Supported independence platforms also help their partners acquire other practices with funding and attractively priced financing that allow breakaway teams to create mini-empires within these firms.
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.
