It's not just advisors at wirehouses who are looking at the prospect of RIA independence with a longing eye. It's also their colleagues at
A recent survey conducted by the research firm Cerulli finds that 32% of advisors at
In the past, though, much of the talk about
No shocker
Cerulli's findings come as little surprise to Daniel Yerger, the president of
Yerger said it took him only about four years in the independent broker-dealer world to decide he wanted to try another way of doing business. Yerger said his chief complaint concerned the lack of options he felt he had for how he was able to charge clients for services.
His preference was to rely on fees set as a percentage of the assets he had under management or to have clients pay for advice over a set period of time — both standard models in the RIA world. But his employer mainly offered products like
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Yerger said he had two choices if he wanted something different. He could either try lobbying his firm to change its policies.
"If you're in a big IBD with 10,000 or 15,000 reps, that's pretty hard to do," he said.
Alternatively, he could leave to start his own firm. That's exactly what Yerger did in 2019 when he founded My Wealth Planners. Yerger said he now has $65 million under management and — more importantly — no regrets.
"If I'd known how to do it on day one, I never would have even been with an IBD," Yerger said. "But I didn't know how to run the business. I didn't know how to do it."
On the decline
Cerulli's report suggests advisor headcounts are on a downward trend at independent broker-dealers. Firms fitting into the IBD mold ended 2022 with 50,266 advisors on staff, a number down nearly 20% from 10 years before. Wirehouses, also suffering from a slow headcount bleed, ended 2022 with 43,907 advisors, a decline of 10% for the decade.
Cerulli's figures suggest the biggest winner in all of this — aside from retirement — has been independent RIAs, which ended 2022 with 44,419 advisors, a nearly 66% increase for the decade.
To be sure, attrition isn't the trend at all independent broker-dealers. LPL, for instance, has been adding to its headcount through
"We look at the competitive landscape and the participants have remained largely the same, as do the priorities that advisors are looking for when they evaluate their options to potentially move," Arnold said. "And as a reminder, the first priority is around capabilities, technology and service."
Ryan Johnson, the founder of Hundred Financial Planning in Grand Rapids, Michigan, said he can't look back at the nearly two years he spent working at an LPL-affiliated firm before going independent and say it was all bad.
"LPL did a great job of basically putting everything in one place from marketing submissions approvals to developing model portfolios, trading, billing, performance," he said. "It's really this one hub. And I didn't even realize when I was going independent, how you have to do every single thing yourself."
Compliance frustrations
Still, Johnson said he has no regrets about starting his own firm in February. Besides being able to charge clients how he wants — many choose to pay a monthly subscription fee — he now has more freedom to deal with regulatory matters as he sees fit.
He said he remembers feeling frustration upon being told by LPL he couldn't promote a charitable event in a nonprofit group's newsletter without first furnishing a program or speakers' notes for the seminar.
"And I get it. They've got to figure out a way to cut back on their liability," Johnson said. "And I don't fault them for it. I'm just suggesting that I know I'm not going to say anything that's un-kosher, so I'm OK to take on that liability myself, as opposed to trying to put it off on someone else."
Joshua Nelson, the founder and CEO of Keystone Financial Services in Loveland, Colorado, said he dropped his brokerage license and went fully independent in 2019. Before that, he and his firm had maintained affiliations for nearly 10 years first with LPL and then Cetera.
Nelson said he decided to make the switch to independence after many potential clients started to ask if he was a fee-only advisor. Nelson said he was having a hard time explaining that he ran a hybrid firm that would collect a fee for assets under management at certain times and commissions on brokerage products at others.
Nelson said he mostly enjoys being his own boss. But advisors, he said, should make sure they take the step into independence with their eyes open.
One possibly overlooked advantage of large firms, Nelson said, is that they make collaboration with other people in the industry easy.
"You have more of a sense of community," Nelson said. "And as far as conferences and meetings and things like that, those firms do a very good job connecting their people. And when you're completely independent, completely on your own, you have to do all that yourself."
One regulator less
Nelson said one benefit to dropping his brokerage license is that it allowed him to also drop a regulator. Hybrid advisory firms with a broker-dealer affiliation come under both the Financial Industry Regulatory Authority and the Securities and Exchange Commission. Pure RIAs are solely under the SEC.
That doesn't mean compliance has been easy. Nelson said he has regularly turned to third-party consultants for help staying on the right side of industry regulations.
Mark Quinn, the director of regulatory affairs at Cetera, said he thinks independent-minded wealth managers often overlook the support larger firms can offer on everything from technology to compliance to accessing a broad variety of investing products and services. He also said firms like Cetera have become much better at finding ways to accommodate almost any type of business model an advisor might want.
"You can be a commission-based broker, you can be part of our RIA or you can be an independent RIA and simply affiliate with our RIA," Quinn said. "We offer any combination of those. It's like one of those menus where you can have one item from column A and one from column B."
What's holding them back
Cerulli found that trepidation over the possible pitfalls of going it alone is common among advisors considering the RIA path. Just over 45% of its survey respondents said the thought of running their own firms gave rise to concerns about staff management, technology and regulatory compliance.
Likely because of such anxieties, 36% of the respondents to Cerulli's survey said they'd consider maintaining a relationship with their former broker-dealer after a move to independence, and 33% said they were unsure what sort of business model might suit them best. Yerger said he was able to deal with many of the paperwork filings and other preliminaries of starting a business by working with
Grumbling still more common on Wall Street
Independent broker-dealers may be at similar risk of losing wealth managers as their large wirehouse rivals. But Cerulli's survey suggests it's the big firms where advisors generally remain least happy.
The main complaint for wirehouse employees — a lack of staff support — was named by 65% of the respondents currently or formerly employed at one of the Wall Street giants. And the second biggest cause for gripes — changes to compensation — was cited by 60%.
Meanwhile, the chief complaint among current or former IBD employees — a lack of sufficient technology — was named by only 47% of the respondents. The next two biggest gripes — a lack of influence on firm decisions and a lack of support staff — were both cited by 31%.
The results point the way for firms worried about retention. Andrew Blake, an associate director in Cerulli's wealth management practice, said many independent broker-dealers have improved their chances of holding onto advisors by allowing them to become affiliated as independent advisory representatives, or IARs. Raymond James, for instance, has more than half of its
Blake said the other lessons from Cerulli's survey are that firms should devote resources to making sure their technology is up to date and that they offer support for business development and staffing. Independent broker-dealers also need to set a priority on recruiting, he said, especially in an industry in which one out of three
"Additionally, it is essential that firms recruit and develop new advisors who can not only provide a transition path for retiring advisors, but also can support the growth of a firm through their own individual efforts," Blake said.
