See this: The year is 2002, George W. Bush is president, a gallon of gas costs $1.50, and no one has ever heard of bitcoin.
There is no doubt that a lot has changed in 20 years – not to mention the dramatic changes in the wealth management industry landscape.
While many advisors pine for the so-called “good old days,” the reality is that even as recently as five years ago, options were irrefutably more limited to those wondering whether their current firms could serve clients. Was the best place to do it. This increased optionality is a wonderful thing for consultants—the increased choice and competition for top talent.
But with this expanse of viable solutions comes a certain level of confusion. So much so that choosing between independence and the traditional employee model isn’t even that straightforward—the delta between the two worlds as top firms are now offering consultants more of what they want.
The influx of quality options can often lead to “analysis paralysis” – with advisors examining all sides of a circle ad infinitum,
While it is true that almost all quality firms (large and small) can support basic planning and investment functions, the notion of “it is more or less the same everywhere” is not true.
Overcrowded landscape of valid options
I often ask consultants I work with this boundary question:
If you had a magic wand and could build your perfect firmament from scratch, what would it look like?
Advisors will often list several characteristics (such as the freedom to serve clients without limitation, ability to earn a reasonable salary, flexibility on growth and eventual retirement, etc.).
But in the modern wealth management industry landscape, these attributes can be achieved in a number of ways, both as a traditional firm employee and as an independent consultant.
Consider the case of 25-year-old wirehouse consultant Danielle, who is interested in making a move. As Danielle put it, “I know what the wirehouse world is all about. I want something more.”
This is a common sentiment shared by the stalwarts of the industry. Even though there are significant differences between the big firms, many people always dismiss the notion of moving to another wirehouse.
So, where are these advisors looking?
Often the conversation begins with the world of new boutiques and regional firms. These firms represent the traditional employee model but with a more agile culture and sometimes a more dominant impression and sophisticated advisor/client base.
Today, two well-known entrants in the boutique space, First Republic Wealth Management and Rockefeller Capital Management, have become viable alternatives to top-tier advisors. In addition, regional firms such as RBC and Raymond James, which are no longer regional in the geographic sense of the word, are legitimate players in the upper reaches of the industry.
But most advisors, even those who feel confident that one of these models is right for them, ask the question at some point or another: “What about independence?”
Freedom in its true form, by which an advisor attacks on his own and starts an RIA with the help of a third-party asset custodian, is a bridge too far for these advisors. Those interested in that path know it from the start: they are entrepreneurial at heart and are not looking at a regional or boutique firm simply because they simply don’t satisfy the desire to build their own venture.
But crucially, an incredibly strong ecosystem has been born, supporting advisors solving almost every possible obstacle. So advisors who are not naturally entrepreneurial can still legitimately take the leap of freedom.
As a result of the development of supported independence models (that is, firms that provide transition support and ongoing middle and back-office functions), it is common to find consultants considering both options: regional and boutique firms on the traditional employee side and Supported platform firm on the independent side.
evaluation of alternatives
So how does an advisor weighing these options reconcile the decision? It comes down to what they value the most.
If the answer to that question is Upfront Capital, it’s a pretty obvious choice. Even as many of the backed independence firms start paying out some upfront capital, it’s nowhere near the same ballpark as these traditional employee channels.
However, for most advisors, the decision is not so cut and dry. While no one will turn down advance money, it is often not “Item 1A” on an advisor’s priority list. And with the many creative capital solutions available in the free world (forgivable and non-forgivable debt, equity sales, revenue sharing notes and more), it’s these advisors who have some real soul in what they’re looking to do.
Among the ideas to evaluate:
- Up-front Capital Vs. ongoing payment
- Scaffolding and Support Vs. freedom and flexibility
- Short term monetization vs. long term enterprise value
These are not easy issues to weigh, and I don’t claim to have a “correct” answer if one exists. But I’ll ask a question instead: How free is free? For some, only maximizing freedom and control is enough. That means there’s no W-2 status, no management team to report on, and no ever-changing payout grid. For others, these boutique and regional models are quite independent: less pressure to cross-sell, less bureaucracy and a better, more agile culture.
Some consultants will never break away from the wirehouse world: They need brand, resources, and consistency—and there’s nothing wrong with that. Other consultants would never work as an employee: they value independence, flexibility, and control above all, even at the cost of a brand name. But a large subset of advisors fall somewhere in the middle – and for these advisors, the possibilities, though daunting, are both exciting and plentiful.
Jason Diamond is the Senior Advisor, Vice President of Diamond Consultants – a nationally recognized recruitment and consulting firm based in Morristown, NJ that focuses on serving financial advisors, independent business owners and financial services firms.