For decades the industry has seen a gradual migration of advisors from employee-based channels to independent operators. In fact, industry researcher Cerulli predicts that in the next few years, there will be more advisors and assets in the independent channel than in traditional Wall Street brokerage firms. The breakaway broker phenomenon is alive, well and growing fast.
What fuels this movement? Beyond the headline-grabbing scandals of the financial crisis, high commissions and product failures that have plagued wirehouses, investors are becoming fed up with how their money has been handled in these traditional models.
While these firms talk a good game, investors have become more educated about fiduciary issues and why it is critical for their financial futures to work with someone who has their best interests at heart.
Yet there still are more than $5 trillion in assets housed with these four firms (Bank of America Merrill Lynch, Morgan Stanley, Wells Fargo and UBS). Industry experts have predicted a day of reckoning would come, but thanks to one of the longest and strongest bull markets, that death knell for Wall Street remains at bay — for now.
And that is because, while investors may not like the institutions, they remain loyal to their advisor and therefore are willing to put up with problems of the mother ship.
Along these lines, it has become a new communication challenge for branch managers to try and stem this tide and keep advisors in their seats. Executives and their branch managers continue to propagate the idea that advisors could not be successful on their own because they needed the brand, product access and technology that these full-service firms have historically provided.
However, post-financial crisis, those brands have been damaged with a never-ending list of scandal-laden headlines, fines and customer complaints surrounding fake accounts and more.
Investment product access is now open architecture and available through the independent platforms, while wirehouse technology has lagged the times due to the structural issue of having to manage to the lowest common denominator of advisor that populates their thousands of advisors.
The Big Trend
The good news for the independent industry is that technology leadership has rapidly moved to independent advisors as their growth and success are attracting investment from both incumbent firms and newcomer disruptors.
Case in point: the Technology Tools for Today (T3) exhibit hall. For 15 years, industry tech guru Joel Bruckenstein has led the T3 conference to showcase and exhibit the latest technologies available to independent advisors.
Hundreds of independent RIAs come to T3 every year to shop for the latest in client portals, wealth reporting platforms, mobile apps, rebalancing tools, account aggregation systems, workflow automation and more.
By being able to customize the latest technology to independent wealth management delivery, innovation is thriving in the independent space without having to be limited by massive bureaucracies, committee oversight, and lengthy rollout schedules that plague the wirehouses.
This year's recent T3 Advisor conference, held in early February near Miami, provided a long list of new innovations that will continue to accelerate the breakaway movement. Top of the agenda was the release by Orion Advisor Services of its new trading and rebalancing platform Astro.
Astro enables advisors to customize portfolios and build their own index to manage the account for legacy positions or ESG purposes without having to stray from risk/return parameters. By investing in the underlying securities, advisors can mimic an index and no longer need the ETF or mutual fund structure, so they can easily harvest tax losses, protect legacy positions and provide a powerful benefit to their clients.
The rise of model marketplaces is another area that is disrupting traditional Wall Street managed accounts. Large asset managers such as BlackRock are making their strategies available through portfolio accounting/rebalancing systems such as Orion, Black Diamond and TD Ameritrade's iRebal, through which advisors can access these high-quality strategies, in many cases for free, further driving down the costs of portfolio management.
