Are Wirehouses Paving Their Own Pathway To Independence?

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Q4 hedge fund letters, conference, scoops etc


Photoboy720 / Pixabay

Wirehouse advisors seeking independence may not have to break away. They can operate as “captive independents” within their existing firms. But will this model be independent enough?

Earlier this month, AdvisorHub reported that UBS was about to launch a “business to serve independent advisors.” Although the article was scant on details, and no other publication has written about it since, I’ve had many conversations with advisors that have yet to be resolved.

Even if the article was a gilded version of the rumor that’s been circling for some time, the premise is significant nonetheless.

While wirehouses have long refused to acknowledge the momentum towards independence – often dismissing any “breakaway” losses as one-offs and anomalies – the trend is undeniable. Over the past decade, even the biggest naysayers have found it hard to rebuff the validity of the exodus as they watched so many multi-billion dollar teams leave the brokerage world to launch their own independent firms.

The story about UBS signifies the beginnings of a thought-transition amongst the big firms. That is, it is an acknowledgment that the independent space is indeed valid and worthy of not only their attention, but also their participation. And it makes sense; here’s why:

    1. It’s a great way to stave off advisor attrition – and keep top talent in-house.
    2. It’s better for clients – allowing advisors to offer more customized service models.
    3. It acknowledges changing advisor sentiment – and provides a pathway to better align with these changes.
    4. It’s a reality that’s not going away.

With so many advisors serving high-net worth and ultra-high net worth clients, brokerages are looking for ways to retain these corner-office folks – offering them the allure of independence right in their own backyard.

What would an independent model launched by a wirehouse look like?

An independent arm within a wirehouse is one I would call “captive independence.” And it’s not something entirely new: Raymond James and Wells Fargo have been offering an independent broker-dealer option for years.

The option to go independent, while remaining with the same firm, has many benefits. For instance, it’s the path of least friction for advisors looking for more freedom and flexibility combined with the guardrails of a big-name firm they already know. Portability of clients shouldn’t be an issue as the advisor is staying within the firm – that is, going “independent in place” – making it an easier move to explain to clients.

But the end result is likely not as independent as an advisor might think.

In such a model, an advisor would be required to use the firm’s platform and technology, and to operate under the corporate ADV. Unlike the RIA space, there would be limitations on the ability to self-brand or participate in social media. Also, unlike their RIA counterparts who can shop the street for products and services, advisors in this more captive model of independence would not have access to the whole of the market. Thus, advisors looking to act as true fiduciaries will still find themselves conflicted.

And from a financial perspective, the differences can be significant: The more limitations placed on a business, the less value it will actually have should the advisor seek to sell his or her practice.

Read the full article here by Mindy Diamond, Advisor Perspectives

Saved Articles

Are you a smart investor? Join tens of thousands of sophisticated investor reading our authoritative free newsletter

* indicates required

Opt out of occasional 3rd party offers

Congrats! Are you a smart person? We have a limited time offer for sophisticated and loyal readers like yourself.

Sign up today and get three months free

Use coupon code VIP19 or click on the button below

Limited time offer only expires 8/31/2019 or next 30 now just 2 subscribers whichever comes first – please do not share this discount with others