When Wirehouse Advisers Seek Independence

Many in the industry believe that successful wirehouse advisers frequently move between the big four but rarely transition to full independence under the RIA model, according to Simon, CEO and founder of Highline Wealth Management and author of the case study “The Grass Is Only Greener If They See It: Helping Wirehouse Advisers To View Your Firm as a Destination.”

Simon notes that over the past eight years, during some of the most difficult and turbulent markets in recent memory, RIAs saw their market share grow by more than 30%,while the market share of wirehouses dropped by nearly 20%.

Highline’s case study says it is not just clients and assets in transition but also advisers. The number of advisers in the registered investment adviser (RIA) channel has steadily grown during that same time by 25%, compared with a decrease of 21% by their wirehouse counterparts, the study says.

Some of the most successful wirehouse wealth management teams in fact are peering over the fence at independence. A growing number are making the move, he says, but advisory practices should ask whether they are prepared to state why their firm is the right destination.

Each adviser is different, Simon says, and so each has different hot buttons that would attract them to a practice. “Highline’s approach is to be very transparent about who we are, how we do things and, when appropriate, even our financials,” Simon tells PLANADVISER. “We look for advisers who are a good fit culturally and have investment philosophies similar to Highline’s. We have added advisers who are hungry to grow their client base and income, and also added advisers who are closer to retirement.”

The benefits a wirehouse adviser can bring to an independent practice may not be entirely predictable. Since each adviser brings unique knowledge, skills and experience, the answer will depend on the specific adviser, according to Simon. 

Improved Service

Highline’s case study mentions a Merrill Lynch adviser who joined Highline in early 2008. “Bill Schwartz is a CPA and Certified Financial Planner (CFP) with tremendous knowledge and experience in tax and planning issues,” Simon says. “He has improved the way we serve clients and has served as an adviser to many of our firm’s key clients. Believe it or not, in addition to the tax and planning knowledge, Bill has a real knack for aesthetics and marketing. He led the revamping of our office, website and marketing materials.”

The thought of transitioning to an RIA would have been highly problematic and relatively unattractive for all but the bravest wirehouse advisers even five years ago, Simon says. “Back then, the more transactional commission-based nature of their book of business would have made the change to a mostly (if not entirely) fee-based environment a veritable non-starter,” he says.

But today’s landscape is very different. Simon notes that wrap fee business has become a significant part of many wirehouse advisers’ books, and continues to grow briskly. “As a result, both their portfolios and their billing structures are much more closely aligned to the RIA model than ever before, significantly alleviating much of the past complexity associated with transitioning,” he says.

So why isn’t there a mass exodus of wirehouse advisers moving to establish a new RIA or join an existing one? Simon believes the answer is a mix of cultural factors as well as the upfront payments or checks that wirehouses use as both recruitment lures and retention handcuffs. “I also believe that the RIA path could and would prove much more attractive to many, if only they were better educated as to the compelling benefits they would realize from both a service model and compensation perspective by joining forces with an existing RIA,” he says.

Simon suggests a change of mindset for advisers to break free of old models. “At Highline, we do not care as much about where an adviser is today but care more about who the adviser is, how they invest, and how they serve their clients,” he says. “Through the five transactions we have done, we have found that adding advisers has been beneficial for all three of our key constituencies.”

Practice Benefits

Growth let the firm provide additional services and add resources to the investment team, two key benefits for clients. Their employees benefited because of the new responsibilities the top performers could take on. Last, Simon says, growth was good for their partners because it added economy of scale and improved their margins.

Some firms might worry that adding a wirehouse adviser would change the practice. “Adding any new adviser changes a practice, especially if the firm intends to standardize across advisers,” Simon says.

Some companies, especially the aggregators, allow advisers to act as silos, he says, but Highline does not want to operate as a collection of different advisers. “We want to have one culture, one investment philosophy, and one client service experience,” Simon says. “I want to know that, if I sit next to a Highline client on an airplane, I know what that client experience is like. In order to create this experience, we have incorporated new partners into our investment committee and have enabled them to utilize the firm’s support resources.”

The study’s key takeaways are:

• The wirehouse universe holds significant adviser talent.
• It may not be universally fit as a growth strategy for every firm, but wirehouse advisers can fit in and thrive, in the right RIA.
• The greatest challenge is education. You can’t overemphasize the differences and benefits of your service model and compensation structure.

“I think the greatest selling points are that independence is better for their clients and that we are a fast-growing enterprise that is willing to share its success with new partners,” Simon says.

“The Grass Is Only Greener If They See It: Helping Wirehouse Advisers To View Your Firm as a Destination” was released by the Alliance for Registered Investment Advisors (aRIA), a research study group that comprises six RIA firms. The case study is available free of charge on the aRIA website.