Independent No More: Why These Advisors Switched
Advisor Marta Shen found that her practice had become more demanding, depriving her of time with both clients and her two small kids. So the Atlanta-based independent advisor made a rare move: She moved to the employee channel.
“I think there is a bias of going independent or going RIA,” she says. “So I said, let me think like a consultant, from the outside in, and ask, ‘Why do you want to go independent? Is it about more pay?’ Because that’s why many people go. When I crunched the numbers, it really wasn’t that much more pay.”
Moving from Commonwealth to Raymond James’ employee channel has liberated her from those burdens, Shen says. “I wanted to earn back three hours more per week, which were eaten up by administrative tasks,” she explains.
Call them reverse breakaways: While many employee channel advisors, particularly those at the wirehouses, have made the leap to independence, a smaller number have been moving in the opposite direction.
- Read more: Biggest Breakaways of 2014
More than 150 advisors managing more than $15 billion in assets left wirehouse and regional broker-dealers to join IBDs or RIAs last year, according to Financial Planning’s reporting. In contrast, we found about 24 independent advisors — managing about $2 billion in assets — who went back to the employee side.
Why do these advisors swim against the tide? The reasons include fewer management responsibilities, easier succession planning and better growth opportunities, say former independent advisors.
RUNNING THE NUMBERS
After more than two decades as an independent advisor, Thomas Smith joined RBC Wealth Management in January 2014. For Smith, a CPA, the transition was all about making the numbers work.
“You wake up and you find have four or seven people working for you. ... I reached the point where I was grossing over $1.5 million, and I realized I had to either hire a CIO, merge with someone or align with a larger enterprise,” he says.
He says his practice is now thriving because he’s not bogged down with management hassles.
And although he now also oversees six advisors in RBC’s office in Tyler, Texas, it’s significantly less work than before because of the support that the larger company offers, Smith says.
“For me, it’s all math. It’s profit and loss, and time management,” says Smith. His practice has roughly doubled to $200 million in AUM, he says, adding: “That could not have happened in the independent space.”
Independent advisors can also cash in more directly by moving to the employee channel, says Rob Blevins, president of Rowlette, a recruiting firm based in Dublin, Ohio.
An advisor producing $1 million could anticipate a recruiting bonus — in the form of forgivable loans — ranging from 120% to 150% of their 12-month trailing production, Blevins says.
“If they are in the top quintile they can get a phenomenal deal. When you go down to the fourth or fifth quintile, the numbers go down a bit,” he says.
Succession planning motivated advisor Danny Hirsch, 67, to move to Ameriprise’s employee channel after working with FSC Securities, an IBD.
“Candidly, what triggered this is that I was unable to put together what I believe to be an acceptable exit strategy if something forced me out of the business,” says the Chesterfield, Mo., advisor, who has been in the industry for 44 years.
Hirsch had trouble lining up a partner and successor who would be a good fit, he explains.
At one point, he says, he had secured someone who was about 20 years his junior, but that advisor unexpectedly died.
Although Hirsch doesn’t intend to retire any time soon, he began looking for a firm that could provide him with a Plan B so that his clients would be taken care of.
One additional factor came into play: Like Smith, Hirsch wanted relief from the day-to-day management responsibilities.
“I’m going to be brutally honest: I was tired of running the business side of the practice. I just wanted to focus on the client base.
“I just decided that I was going to go somewhere where I didn’t have to worry about that,” he says.
Hirsch, who owned his own building, also notes that he was responsible for all the maintenance that goes with it. “Those kinds of things were becoming a pain in my neck. … It takes you away from the client side of the business,” he says.
Hirsch sold the building and now works in an Ameriprise office with 20 other advisors, three of whom work on his team.
“When I lay my head down on the pillow at night I’m at peace knowing that my clients will be taken care of,” he says.
Recruiters say they expect the number of independents turning employee to accelerate, as older advisors look to sell their practices.
“A lot of practices are going to be for sale because of aging advisors and this is one way of selling your practice,” says recruiter Bill Willis.
“You can go from an independent environment, get a check for going W-2,” he explains, “and then get a sunset deal” — in which an advisor agrees to sell the practice over a set period of time to a younger advisor, who sometimes gets help from the firm.
That double payday “can be extremely lucrative” for an advisor, Blevins adds.
Still, Willis notes, that path doesn’t work for all independent advisors. “If you’ve been at a wirehouse and then went independent, it’s hard to get back in. You’re used to being independent. I think going back and conforming to rules can be challenging for people,” he adds.
Another potential hurdle: working with an office of perhaps 20 or 30 people.
“That was one of the interesting things,” says Hirsch. “Even my wife brought [it] up with me: ‘How are you going to adapt to a corporate environment?’ Because for all my career I had only been accountable to myself.”
But he found the branch environment refreshing, he says. “It’s not about the money. It’s about the relationships and how much quality time you can give your clients,” Hirsch says.
Despite the benefits they’ve reaped, former independent advisors say that making the move to the employee channel isn’t for everyone. Raymond James’ Shen recommends looking at the numbers and thinking about what kind of quality of life you want before making a move to a firm in any channel.
“It’s not what you would think,” she says. “We had to challenge our own perceptions of what it meant to be independent, to feel like you own it.”
“Everyone wants to be their own business owner and entrepreneur,” Shen adds. “My parents are small business owners, and I want to own my own practice, but I don’t want to do all the minutiae. That’s not fun. Working with your client is fun.”