Thrivent Advisor Network President Carolyn Armitage and Journey Strategic Wealth President Penny Phillips discuss the future of brokerages and in wealth management with FP Chief Correspondent Tobias Salinger. The full transcript is below:
Tobias Salinger:
Hi, I'm Toby Salinger. I'm the Chief correspondent at Financial Planning. Our parent company is Arise. Welcome to Leaders. It's a forum that brings together innovators and senior executives to share their experiences and perspectives on the most pressing topics. The subject of our discussion today is the changing roles of brokerages in wealth management. We've got two great guests. Penny Phillips is co-founder and president of Journey Strategic Wealth, and Carolyn Armitage is head of Thrivent Advisor Network. Welcome to our panelists. Thank you so much for joining us.
Speakers:
Thanks.
Tobias Salinger:
And both Penny and Carolyn lead registered Investment Advisors, but they each spoke with FP for our cover story in the annual IBD Elite issue tracking, the largest independent broker dealers. The title of the story is Brokerages Are Changing, Not Going Away. You can find the full feature on our website at financial-planning.com. One quick programming note for the audience before we jump in. Please feel free to chime in with any questions at any time. I'll be sure to pose some of them, uh, to our panelists as we go. And okay. Let's, let's get started. Um, why don't we start with Carolyn for this one. Um, so what is the setup, uh, for your firm, uh, with respect to this whole question of brokerages, RIAs, and parent companies?
Carolyn Armitage:
Yeah, thank you Toby. I appreciate you asking. So, I'm the president of an organization, an RIA called Thrive Advisor Network, and we are a wholly an subsidiary of Thrivent, which is 120 year old firm. We have our roots in protecting and taking care of each other, and we started as a mutual benefit society. Uh, today we're a 501c8 organization. And we're a diversified financial services company with over $160 billion in assets. We have an asset management company, um, called TA or Thrivent Asset Management. We have a brokerage and investment advisory platform called Timmy, or Thrivent Investment Management Inc. Which has a foundation of holistic planning, and that's our traditional career advisor side of that business. We have a trust company that's turnkey and advisor manage. We have a credit union. We're starting a bank, and we have private charitable where we have a donor advisor fund.
Carolyn Armitage:
Our, um, members volunteer over 10 million hours a year to invest back into our community, as well as, um, donating over $238 million this last year. And now Thrivent has expanded into this independent channel through Thrivent Advisor Network, which I manage. We have two different affiliation models. One is a 10 99 independent contractor affiliated model, and then we have a partner model whereby advisors can use TAN to be their succession plan and will acquire the firm and the, uh, employees of that model in order to provide ongoing service for generations to come. For our brokerage platform for Tan, we use an unaffiliated firm called PKS in order to further emphasize the independence and that our advisors do have choice. So our financial advisors in both models of Tan have the opportunity to make an impact in their clients' lives across generations by partnering with a purpose led organization that supports their personal values.
Tobias Salinger:
Excellent, excellent. Very interesting, uh, structure. And, uh, I love how you covered all the, all the bases there, um, uh, because it is so interesting and important to advisors to, uh, you know, to really look into that. Um, Penny, why don't we ask you now, um, about the structure of, of your firm. How do you, um, think of this whole question, um, and it's everything today in wealth management, uh, around brokerages, RIAs, and parent companies. What's, uh, what's the setup at Journey Strategic Wealth?
Penny Phillips:
Yes. Well, my answer is, uh, really like a sentence long. So I, I'll make it a little bit longer to, uh, to, to live up to, to Carolyn's introduction. But Journey Strategic Wealth is an RIA. There's no parent company. We're registered investment advisor. We do have what we call, and I'll explain it later in our conversation, and RIA-friendly broker-dealer affiliation also with PKS. Um, when we launched the business, we inherited a number of clients who were PKS clients, and we took on that business. It's important to note that 99.9% of our business is advisory fee only. Um, uh, most of the advisors who join us are leaving either the, the independent broker dealer channel, insurance, BD channel, or wirehouse channel specifically because they want a, a mostly RIA offering. Um, we are just under 3 billion, uh, in aum. We launched in January of 2021.
Penny Phillips:
We have offices in San Francisco soon to be offices, uh, on, uh, I can't say yet, but, uh, in the, in the south. Um, and we just opened an office in Seattle. Um, our structure, I would say is, um, is similar in terms of what we are trying to do for independent advisors. We wanna provide independent advisors with all the tools and resources they need to advise and not necessarily run businesses. So most of the folks who join us join us because they love advising. They are financial planners by trade. They are not sales people. They enjoy giving advice and they wanna partner with a firm that enables them to spend the majority of their time doing just that. So when I describe Journey, I, I always say we are, uh, an, an RIA that allows advisors to outsource operations, investment management, and financial planning and practice management.
Penny Phillips:
So we take in active role in helping advisors think strategically how to grow their business. Um, we also have a, um, a capital that we can deploy to help advisors acquire other books of business or engage in succession planning, either with us or other partners within our organization or with G2 on their team. So I would say similar in terms of our, our, um, value proposition, slightly different in terms of our structure. The last thing I'll say is we also have a, um, insurance entity called Journey Strategic Wealth Insurance Services. We set up that entity because we tend to attract advisors who have started their careers in the insurance space and wanna be able to offer insurance as needed, but in a, uh, in a objective and conflict free.
Tobias Salinger:
Excellent. And, um, just as we were talking, uh, before we went live, uh, we know that, you know, flexibility, uh, is, is so important to advisors, uh, these days. And, you know, that is why many of them, uh, do gravitate toward, towards, uh, firms like, like yours who, uh, who may be a bit newer on the block, um, but therefore bring, uh, you know, a bit, uh, newer eyes to it, uh, even when, uh, the parent company could be in some cases over a hundred years old, um, in, uh, in the case of Carolyn's firm. Um, for our next question though, I do wanna start with, with Penny this time. Um, and, uh, I wanted to kind of get into a, something we, we talked about, um, as we're thinking through this whole question of brokers and, and brokerages. Um, so, so Penny, um, what is the connotation of the words brokers and brokerages in the industry today, and why do you think it can be an oversimplification or sometimes even just wrong?
Penny Phillips:
This is such a big question, and so I'll answer it in a bunch of different ways. I mean, this simple answer to your question is that the term broker has a negative connotation in most cases. And I, I, I think I, I would say in most cases in today's environment, that's a, a wrong connotation to have because just because you're earning a commission on a certain product doesn't mean you're doing anything bad or or wrong. But you have to think about where we've come as an industry, like our, our entire space, the wealth management space started as a individuals who were selling or transacting with the consumer to earn a commission on a product. And the consumer has evolved from that time place at that time as have advisors. So we've moved from selling or transacting for a commission to then providing certain packages of products for a fee to, to now saying, Well, our industry has become commoditized.
Penny Phillips:
And so now we're gonna offer, uh, advice in exchange for a fee and provide clients with a list of potential products and solutions that they could use, but we're objective as to what, you know, what they can use. Um, and so I think when I talk to advisors about the options that exist for them in, in the industry right now, it is you're either affiliating with a broker dealer, a broker dealer that has an RIA affiliation and RIA that has a BD affiliation or a pure ria. And what I'll say is that none of those are right or wrong, but what I think it's important for us to do as an industry is be completely transparent with what that actually means. And I, I actually tend to be more critical of the RAs than I do the broker dealers. Um, we know the challenges that have existed in the broker dealer space, um, and, and it's not every broker dealer, but, but there is a reason why broker dealers have started to create RIA entities or RIA subsidiaries, and there's a reason why advisors have, over the last 10 to 15 years left the, the broker dealers in large brokerage firms because there have been conflicts of interest around selling proprietary product, around getting paid certain commissions on products or, um, being incentivized to sell products to, to clients when there are other solutions that are lower cost, not just to the consumer, but, but don't pay a commission to the, uh, to, to the salesperson.
Penny Phillips:
And so we know all of that exists, and I give the broker dealers credit for trying to evolve by getting into the RA space. My issue is actually with the RAs that optically perhaps hide their BD affiliations as an R, there's nothing wrong with saying, we have an affiliation with a broker dealer for these reasons. And when you do business through this broker dealer, this is how you get paid. And we should have no problem telling, not only the advisors who are joining that, uh, us that, but, but the end consumer as well. The challenge is, there are a lot of firms now that are RAs are structured as RAs that also have broker dealer business. And you know, if you check the adv part eight of, of, uh, you know, their advs, it'll plainly say that even though they're an R and they're acting as a fiduciary, that they are still able to sell proprietary product, they're still able to have an interest in certain, you know, mutual funds and securities that they're selling to clients.
Penny Phillips:
And so what I'll sum up by saying is that, um, the, the connotation, I think it's, it's wrong to say that being a broker is bad. What I think we need to do more of though is be transparent with advisors and the end clients about what this all means and how it impacts them. Um, you know, if you're at a, a broker dealer, but you're a hybrid, and so you have an RA affiliation, and so you can say that you act as a fiduciary. It's also important to state that there are instances where you do adhere just to a suitability standard. And, you know, that may not be the most popular comment to make, but, um, that is what the consumer is demanding, and that's what the advisor is demanding from us as an industry. And so, uh, a long answer to your question, but the connotation is negative. It shouldn't be, we should give flexibility, but I don't think we're still being as honest as we can about how things work behind the scenes both to the advisors and the end consumers.
Tobias Salinger:
Yes, I, uh, I, I don't know of a ton of people, um, who are outside of the, uh, industry who would take the time to read a form adv, and even some people within the industry, uh, you might be hard pressed, uh, hard pressed to, to find, and even some journalists too, um, <laugh>,
Penny Phillips:
And that's part of the problem, Toby, that's part of the, the problem. They don't know what they don't know, advisors and clients and executives sometimes.
Tobias Salinger:
Yes, it's true. Um, Carolyn, uh, let's bring you in again. Um, well, what do you think of the, this question, the, the whole connotation around this, this word brokers and, and brokerages, and how can it be kind of an oversimplification, um, or just even stating, uh, stating this complex issue in a, in a, you know, factually wrong way?
Carolyn Armitage:
Yeah. So I would say that a, a broker is in the, really an intermediary and they connect a seller and a buyer to facilitate a transaction, right? We're not the only industry that has brokers. There's a lot of industries that have them, and the service itself isn't inherently bad. It's really a terrific service that many folks need. Um, I think the main function of a broker is to solve a client's problem for some type of fee, whether that's in the form of a commission or a flat fee. I think where the challenge is, is that the term can have that negative connotation as Penny mentioned, thanks to some bad actors, right? Uh, that have really spoiled it for the rest of us. So the industry has largely moved away from using that term when they're providing brokerage services. Generally folks are called financial advisors or, um, financial professionals or some other term like that. And when you consider that, there certainly have been high profile cases where, uh, there's been major conflicts of interest or issues for clients, we do need to keep in mind that in all industries, there's folks that, um, are unethical and kind of spoil it for the rest of us. Great example is Bernie Madoff. He was an investment advisor and he gave financial planning, wealth management a really bad black eye for a long time that frankly is gonna take us many years to recover from.
Tobias Salinger:
Well, it, it's true. And, uh, I can speak to you as a reporter covering compliance cases. I cover probably 50 50 between the brokers and, and RIAs all the time. Um, so, uh, you know, there are always things to address and con issues of, conflicts of interest are incredibly important, uh, to, to talk about and for clients to know about. Um, and so, you know, obviously as you both pointed out, we understand, uh, we understand where, where some, uh, are coming from, uh, on the RIA side when, uh, when they kind of call out brokers online and, uh, and say this or that about them. Uh, but there's a level of complexity and there's a level of transparency that's important of, hey, this is a one time fee, uh, that makes it, uh, cheaper in some circumstances. Uh, there, there were several experts like, like yourselves who pointed out situations for clients where it is, uh, much, much more in their interest, uh, to, uh, to do it on the brokerage side of the house or even just to be able to, to do it.
Tobias Salinger:
Uh, so there's a, there's a lot more subtlety around that, uh, that question than we might sometimes think in the industry. Um, but mo moving on and thinking about kind of the, the whole future of the industry, um, and, uh, you know, as I'm sure there are, uh, several advisors on, uh, on this call who are primarily, uh, doing ria, uh, business, um, and, uh, wealth managers more and more, uh, that is, uh, the, the future of the industry, um, on the RIA side in advisory accounts. Um, for, for Carolyn, uh, to, to go first this time, what do you think is the, the future for brokerages in a field, uh, that is increasingly dominated by RIAs?
Carolyn Armitage:
Yeah, it's a great question, Toby. So I would say choice is super important for consumers. Uh, not all clients fit the investment advisory model. We have seen a trend over the last really 20 years where most RIAs are exclusively serving either high net worth or ultra high net worth markets. And that really leaves the middle markets and the emerging markets completely underserved, right? So I don't think that's great for society, quite frankly, right at, at thrive. And we want to help all people, not just the rich, otherwise, our society is going to become even more bifurcated between the haves and the have nots. So I think brokerage fills a really nice gap where clients don't fit the IA model, it's just not, uh, profitable for RAs to serve those emerging and middle markets. So I think they have a place.
Tobias Salinger:
Absolutely. And, and Penny, what do, what, what do you think, what is the, the future of brokerages in this increasingly RIA industry?
Penny Phillips:
I actually, uh, I really agree with Carolyn on this point, that it's, it's such a smart point about how we can serve clients across the entire, um, spectrum of, you know, income and, and, and wealth. And it's a, a problem that we've had in, in our industry for a long time, I think. Um, so, so I completely agree. I don't think brokerages are going away. I think the RA space and the broker dealer space is trying to solve that same problem in different ways. The RA space, it is about, you know, subscription fees and, and actually even moving away from, um, advisory to try to find ways to offer advice at scale. The, the, the brokerages are, uh, doing it a little bit differently, but, but trying to solve the same, the same problem, I would say. Um, uh, they're, they're not going away. Um, in part because, um, where we're at as an industry right now is the consumers being sort of forced to make a choice between low lowest cost or highest value, lowest cost, meaning, um, you know, go to a robo advisor and very low cost, you know, manage your own stuff, or highest value the ways in which we deliver highest value.
Penny Phillips:
We, we can deliver that in a bunch of different ways in a bunch of different models. And so, um, you know, like Carolyn said, I don't see the, the brokerages going away. What I do see them recognizing, though, is that, um, candidly, there's a, there's a lot of money to be made in the, the, the affluent space, especially as wealth transfers. And, um, you know, recurring revenue is from a, from a business standpoint, is the name of the game, especially as it relates to valuations. And so getting into that market marketplace and helping advisors who've traditionally serve the middle market, get into the affluent space through advisory and financial planning, we've seen that trend in, in the BD space for the last 10 years. And I think, I think that'll continue.
Tobias Salinger:
Excellent. Excellent. Well, and, and keeping on the, the theme, uh, from the future, uh, uh, of the future. I mean, uh, we got a good question, uh, from the audience, uh, from a well known industry consultant, uh, the two of you might have, uh, met Tim Welsh of, uh, of Nexus. Um, uh, thank you for the, the question, Tim. Uh, yes. Advisors and clients are voting with their feet and moving to the RIA model. Um, can BDS ever evolve to stem that tide, or has the battle already been one? Uh, penny, do you wanna take a stab at that?
Penny Phillips:
I'm gonna guess we have slightly different answers to this. Um, I'm gonna say, uh, um, and coming from a, a background of consulting BDS to leaving that world to, to launch an riaa, I I'm gonna say, um, no, I don't, I don't think there's necess, I think we have to think of it differently. I don't think we need to think of it as a battle per se. I think we need to recognize that it's gonna be difficult, and we've seen this for bds to evolve as quickly as RAs do. There's a lot of reasons for that. Compliance and bureaucracy. When you're building an RIA or wealth management division within a broker dealer, you're still part of the broker dealer. Um, in many cases, the RAs within the broker dealers are not always profitable. I mean, there are many reasons for that. Um, the other thing is just the FinTech space.
Penny Phillips:
Um, there's a, a great quote, change will never be this slow again, things are changing and happening so rapidly in wealth management, specifically in FinTech. It's simply easier for RAs to, um, to, to be nimble, to adopt, to try new things, especially as it relates to tech. The bigger firms, they're like huge ships. It's hard to move them in the harbor. Um, but, but I, I think we need to see, see it less as a competition and more of just sort of the reality of, of what it means to be at a large firm versus, versus a smaller boutique firm.
Tobias Salinger:
Absolutely. And, and Carolyn, you've got, uh, you've got an amazing, uh, uh, background in this industry having, uh, been with LPL before and, uh, with the, the firm previously known as HD Vest, um, and so many other well known, uh, uh, wealth managers, uh, operating, uh, in this dually registered world between brokerages and RIAs. What do you think of that, of that question with, with recruiting? Is that, is that, has that trained left the station or, or can brokerages catch up in some way?
Carolyn Armitage:
Yeah, it's a great question that, that Tim posed. Uh, thank you for asking it. You know, I mentioned a client or consumer choice earlier. I do think financial advisors deserve a choice as well. Uh, we've seen brokerage firms move beyond the BD model into the IA model, really for sustainability purposes. The profit margin on the IA business is so much greater than it is on the broker dealer side. It helps them balance out and be able to provide and continue to offer both, um, unless they move, you know, completely fee only, which I think can be a simpler business model. And, uh, folks can choose to have that niche if they, so, uh, desire to. Um, you know, I I would say that our financial advisors really have a bond that goes beyond financial gains. While our financial advisors do very well, they really are building shops that have success with significance.
Carolyn Armitage:
Um, Penny mentioned transparency earlier. I think transparency in whatever model that you're using is so very important, as well as our ethics. Um, many firms today aren't transparent, whether it's the fees that they charge, they're advisors, and they kind of nickel and dime them to death or transparent in how they're dealing with the clients and all of those costs. Um, I absolutely understand the desire to work with the high net worth and ultra high net worth clients. It's where the money is. It's, uh, where the margins are super scalable. Um, I don't know that it does as much to move our society forward as we, as an industry could. However, we're still a fairly young industry compared to some of the others, and we are trying to be a profession. Um, I would love to be more of a holistic industry where we can serve all levels of consumers from teaching children how to save, um, as well as when they're early earners and accumulating wealth that we can teach them to pay themselves first so that they have money in the future, and they're not dependent on society to support them. I think we have a long way to go to really become a, uh, um, a better profession. So I look forward to contributing to that, as you know, at, at thrive. And we really want to help move our entire society forward and leave a better imprint than we have in the past. And I love to be a part of it.
Penny Phillips:
Toby, if I'm, if I may add, Carolyn just said something really important, talking about the bond between advisors and clients, and I, I think this is, you know, this is sort of the crux of it. We're, we've, we're commoditized industry. And at the end of the day, um, there isn't a whole lot of differentiation right now within really any channel or any firm around product or tech. I mean, we all relatively have access to the same stuff. It may not work as good in one firm or the other, but it, but it's sort of all the same. Our differentiators as advisors is that is the highest value side, which really is our emotional intelligence, our ability to, to create bonds with people, to, you know, help them emotionally during, you know, times of need. And so for the advisor who's making a decision, um, about where, where, where they go or where they, where they land, um, it really is about the firm, wherever that may be, that enables them to spend their time doing that, um, forming relationships and deepening with rapport with clients on, on a daily basis. And that could happen at a bd, it could happen in an ria, you know, it could happen anywhere.
Tobias Salinger:
Absolutely. And, uh, you know, I think I'm, I'm very glad you kind of brought up that, that last point because it gets to, uh, a question from the audience that we just won't have enough time to, to get to at this moment. But, uh, uh, I think kind of us spoke to just that whole decision facing, uh, advisors, which is what the audience member asked a really good question about. But, uh, hopefully I can cover that in a, in a future story for fp. Um, for now, uh, everyone, please give another virtual round of applause to our excellent panelists, Penny Phillips of Journey Strategic Wealth, and Carolyn Armitage of Thrive in Advisor Network. And if you haven't already, uh, don't forget to check financial-planning.com for our I B D Elite feature and all of of fp coverage of wealth management. And, uh, if you want, go ahead and subscribe while you're there. For Financial Planning, I'm Toby Salinger. Thanks again to our panelists. Everyone have a great afternoon.
