In recent years, the financial services industry has witnessed a notable trend – a significant exodus of both senior management executives and financial advisors from big wirehouse firms to establish or join independent Registered Investment Advisor (RIA) firms. The moves have been significant and seem to buck a trend of consolidation in the wirehouse space as only four real players remain, while there’s a virtual flurry of new RIA firms led by some of the best in the business.
The Moves.
- The former head of the private wealth division of First Republic Bank, Robert (Bob) Thorntonannounced his departure from JPMorgan at the expiration of his retention agreement some 7 months (December 2023) later to form his own independent RIA. Thornton hopes to play upon his success at FRB, will advisors follow, and do they trust him as technically he did preside over the fall. Thornton states the challenge for advisors in the independent space is the “breadth of other wealth management services” that certainly other RIAs have been successful in offering. Likewise, David Breslin from First Republic Bank who reported into Thronton left earlier having developed a partnership with the venture capital firm General Catalyst, where he oversees the newly formed wealth management business, Catalytic Wealth (August 2023). Breslin has already brought over successful teams from FRB and hopes to capitalize on relationships with executives formed from businesses General Catalyst funds.
- Haig Ariyan, the former President, and CEO of Alex. Brown departed in the summer of 2023 to form ARAX Investment Partners (June 2023). Ariyan believes the future of the industry depends upon advisors having the maximum amount of flexibility to serve their clients in the best way they can, citing frustrations with corporate measures that can be too overbearing. Ariyan is hoping to attract Alex. Brown advisors and others given his notable stance in the industry.
- Ex-Wells Fargo Advisors CEO David Kowachofficially retired from Wells Fargo and then launched &Partners (August 2023) which has been successful already in attracting Wells Fargo advisors who wanted autonomy and escape from the brand name. Kowach is hoping to build 100 teams or more.
- Former United Capital luminary Joe Duranhas launched his second RIA endeavor with Rise Growth Partners (2024). Duran hopes to continue to leverage his United Capital/Goldman Sachs Private Wealth relationships and is notably very excited to have Terri Kallsen of great Charles Schwab success partnering with him.
- Former UBS Wealth Management head Jamie Priceleft to form Osaic wealth management (2016), again hoping to capitalize on his deep relationships with advisors.
- Three former Goldman Sachs executives, Gary Roth, Mike Capelle, and Jason Gordolaunched Modern Wealth Management (April 2023) along with private equity partner Crestview Partners. Roth and Capelle co-founded United Capital with Joe Duran and have high hopes of replicating the model for the “next generation advisor.”
Why This Trend?
Autonomy and Client-Centric Approach
One of the primary motives behind this exodus is the desire for greater autonomy and the ability to adopt a more client-centric approach. Independent RIAs often offer a more flexible structure, allowing advisors to tailor their services to meet individual client needs without the constraints of a large corporate framework. This freedom fosters personalized relationships and empowers advisors to prioritize the client’s best interests above all.
Entrepreneurial Spirit and Innovation
The allure of entrepreneurship is another driving force. Transitioning to an independent RIA enables these advisors to build and shape their firms according to their vision. It allows for nimble decision-making, quicker implementation of innovative strategies, and the agility to adapt swiftly to market changes. This entrepreneurial environment fosters a culture of innovation and forward-thinking, traits that might be more challenging to cultivate within the confines of a larger corporation. As larger wirehouses become more and more bureaucratic, senior executives and advisors that were initially founders, creators, and at the very least, entrepreneurs, find that independence rekindles the creative spirit woven into their very DNA.
Enhanced Service Quality and Value Proposition
Independent RIAs often tout a higher level of service quality and a more transparent fee structure compared to their larger counterparts. Advisors leaving big wirehouses recognize the potential to deliver a more personalized experience and create greater value for their clients, ultimately differentiating themselves in a crowded marketplace.
Technology and Digital Transformation
The role of technology cannot be overlooked in this transition. Many advisors are attracted to the potential of leveraging cutting-edge technology and digital tools in the independent RIA space. This allows them to enhance operational efficiency, offer innovative solutions, and provide a seamless client experience in an increasingly digital world.
Regulatory and Compliance Environment
The regulatory and compliance landscape can also influence this shift. While compliance remains a critical aspect regardless of firm size, some executives might find the regulatory environment at independent RIAs more manageable or better aligned with their business philosophies. Advisors can do what is best for their clients without the pressure of selling big firm products and services.
Ownership & Financials
Executives forming RIAs stand to make out like bandits financially given the trajectory of the industry away from big wirehouses and into independent platforms. The deal financials for the advisors moving with executives most often offers ownership that can be sold at multiples of 8-10x for smaller teams all the way up to 15x for large teams. Advisors reap the rewards of 70% inflows to themselves as 1099 tax optimized income after expenses. Venture capitalists are currently jumping at the chance to have an equity stake in these businesses given the high margins and industry trends.
Takeaways.
The migration of senior management executives from big wirehouses to independent RIA firms represents a paradigm shift in the wealth management sector. Driven by a quest for autonomy, a client-centric approach, entrepreneurial opportunities, technological advancements, and a commitment to delivering enhanced value, these executives are redefining the way wealth management services are offered and experienced, not to mention the solid financials of the deals themselves and suite of offerings that benefit both advisors and clients.
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.
