Haven for wirehouse exiles, Steward Partners to launch new affiliation option
Steward Partners, an expanding haven for wirehouse exiles, is getting into the outsourced platform provider business.
The move will enable Steward Partners to offer advisors two ways to work with the firm: become traditional employee advisors or affiliate as independent advisors.
The new business line will pit the Raymond James-affiliated hybrid RIA against other firms catering to breakaway brokers, including Dynasty Financial Partners, the leading platform provider, as well as a host of other smaller competitors.
Steward’s success to date has been based on a straightforward business model: offering breakaway brokers a recruiting bonus and a wirehouse-type home as employees of a firm run by former wirehouse managers. The independent firm also maintains close ties to Raymond James Financial Services.
Since its founding more than six years ago, Steward Partners' RIA assets under management have grown rapidly, and now tops $5 billion, according to its latest SEC Form ADV. In addition, Steward’s brokerage arm has another $7 billion in AUM, according to the firm.
Steward’s new affiliated offering uses a 1099 employment model and will include equity in the firm and an upfront forgivable loan similar to the W2 model.
“The equity component is the big differentiator for this model,” says Steward CEO Jim Gold. “The 1099 affiliates will get the same equity grant as employees, work within the Steward infrastructure, establish their own location and have their own P and L statement.”
Steward, which is employee-owned and received a $50 million investment from The Cynosure Group in April, expects to attract advisors for the new channel equally from wirehouses and RIAs, according to Gold.
Affiliated-advisors will be charged a percentage of revenue.
Affiliated-advisors will be charged a percentage of revenue based on the “complexion of their practice,” he says.
Platform providers typically charge advisory firms 10% to 20% of client revenue. Asked if Steward will fall within that range Gold says he is “not comfortable to give ranges as it leaves too much to be misunderstood.”
While praising Steward for “building a great name in the breakaway space,” operations transition consultant Matt Sonnen, CEO of PFI Advisors, says he didn’t understand the difference or benefits of affiliating with Steward Partners using a 1099 model, “versus affiliating directly with Raymond James via a 1099 model.”
Raymond James offers advisors several ways to affiliate with the company, including a traditional employee broker-dealer as well as an independent BD.
Offering equity and local on-site support are “the biggest differences” distinguishing Steward from Raymond James, Gold says.
But Derek Bruton, president of Chalice Financial Network, a Steward competitor, argues that the equity component isn’t groundbreaking.
Giving 1099 affiliates equity is different.
“The services Steward is now offering to independent advisors, including equity participation, have been provided by successful broker-dealers, RIAs, OSJs, and other institutions for years,” Bruton says. “Ultimately, differentiation will come from precise execution and through maintaining a client-focused culture.”
Another competitor, Dynasty CEO Shirl Penney, notes that his nearly ten year old firm services 47 firms with a combined $40 billion in assets. “Over that time, there have been many entrants in and out of the platform provider space,” he says. “We are not surprised to see growing interest [in the platform market].”
Penney also questioned the efficacy of Steward’s new channel. “It’s tough for OSJs to try to run multiple models that can at times compete for resources and clients with an internal and external model,” Penney says.
Jeff Spears, an industry consultant who ran the now shuttered platform provider Sanctuary Wealth Services, was more generous.
“Giving 1099 affiliates equity is different, and you have to give Steward credit where it’s due,” Spears says. “Dynasty doesn’t have equity. But Dynasty does have a huge head start in infrastructure for outsourcing and a large group of advisors that can share their experiences.”
When Sanctuary shut down several years ago, Spears wrote a brutally honest post-mortem that included a harsh fact of business life: “My firm’s business support was ultimately viewed as an expense that could be cut — and it was by many of our initial firms.”