Not All Advisor Independence Is Created Equal Anymore.
By Tim Smith
Was advisor independence
really about freedom?
I've been asking myself that question a lot lately, as the wealth management industry has evolved. Independence was such a powerful force that changed the way money was managed in this country. We all remember the energy we felt in our business when we saw huge teams break away from the oligopoly of wirehouses to form their independent RIA practices. Independence was positioned as a way for us advisors to better serve their clients, by acting as true fiduciaries and throwing off the shackles of high-fee, pre-selected investment options and products they were pressured to offer.
What’s more, we could be our own bosses, deciding how we would run our practice, what technology we would offer, what kind of client we would take and how we would market and position ourselves.
It was the ultimate entrepreneurial revolution in an industry not quite known for that spirit.
Thus an industry was born and several companies, my own at Aurora Private Wealth included, jumped to be the home of other advisors who really wanted to live free. Liberte! Egalite! Fiduciaire!
It hasn't quite worked out the way as planned for the industry. Oh sure, you still see headlines in the media about breakaways, and great media campaigns around how platforms are providing independence. Yet, many of the biggest platforms now have Chief Investment Officers and are quietly building product offerings to sell through their advisors. Several have begun hiring these advisors as employees, rather than keeping them as a network of independent partners. Yes, you can be a fiduciary for your clients under this model, but it becomes infinitely harder.
Worst of all, there is a trend of advisors who are selling out toward the end of their careers and giving back the independence they had. We have seen a number of large teams throughout the industry who once waved the flag of independence sell to platforms where they again become employees, as a way to ensure they get a nice sum at retirement. Look, that's capitalism, and, maybe for some of them, it's the right move. Still, you can't help but think of Benedict Arnold as a patriot and then thinking the checks would be bigger if he fought for the king.
That may be too harsh, but I'm not the only industry executive who thinks this way. At minimum, there needs to be philosophical reckoning of what's going on. RIA platforms are morphing into mini- wirehouses. Wirehouses are retaking ground they once lost in the RIA space, as seen with Goldman Sachs' RIA Custody offering and UBS launching an independent advisor channel. The revolution has not gone according to plan.
What should industry executives do? Like most situations in life, this takes honesty. If we believe that true independence is important, we need to defend liberty better. Other platforms can slide into a wirehouse model draped in talk of freedom, but the ones that truly believe that fully independent RIAs are the best equipped to serve their clients need to have a frank discussion about how not all independent models are created equal. Independent platforms need to use their capital to be creative about handling the retirement wave among advisors, perhaps buying books of business and then incentivizing new advisors to pursue independence and recruiting them more directly into our own business models.
Most of all, we can't be afraid to evangelize and defend the concept of real independence. There is a price you pay when you become an employee and put yourself in a position to place your clients' assets in their products and their preferred strategies. Wirehouses no longer have a monopoly on that approach.
This country is built on entrepreneurial grit, innovation and the best of capitalism. There are many models out there that can work for both individual advisors and clients alike. But not all of the independent models are really independent. And I, for one, want to see more freedom ring.