The new year ushered in a “perfect storm” in which the intersection of 3 forces – changing advisor sentiment, reshaped client expectations and powerful retention efforts by the brokerage firms – has laid the groundwork for a world where advisors have the upper hand. The question is, will they take it?
The term “evolution” is often used to describe the widespread changes we’ve seen in the wealth management industry—a transformation that was spurred on by the financial crisis in 2008 and which accelerated throughout the last decade.
And while the progression of change often happens over time, by the close of 2019 a “perfect storm” developed, driven by the intersection of 3 strong forces which were simmering over the past few years:
- Changing advisor sentiment: Advisors are placing less value on recruiting deals and short-term upside and instead focusing on the bigger picture: Gaining greater freedom, flexibility and control and the potential of building long-term enterprise value.
- The reshaping of client expectations: Clients have become far more devoted to the individual advisors who serve them—eschewing the dated belief that their needs were best served by big-name firms. Instead, as the term “fiduciary” has become more universal, clients are demanding that advisors put their best interests first, and act as objective stewards—unencumbered by the limiting agenda of the brokerage firms.
- And powerful retention efforts at brokerage firms: Attempts to further tie advisors to their firms have actually served to do the opposite in many cases. That is, emboldening senior FAs and their next gen partners to explore options outside the wirehouses which could offer alternative ways to solve for succession, as well as the ability to better serve clients and grow their businesses.
This convergence translated into higher levels of advisor movement – a barometer by which we measure our own business – highlighting 2019 as the most active year we’ve seen since the financial crisis over a decade ago. At the forefront of this activity, we witnessed the following 5 trends:
- Where advisors are going continues to divide: In reviewing the moves our firm facilitated in 2019, only 16% of those advisors moved from wirehouse-to-wirehouse, while 46% went independent, and 38% chose quasi-independence, boutiques or regionals—stats which are often representative of trends seen in the industry as a whole.
Even those who once considered themselves diehard wirehouse veterans are now more open than ever to alternative options. Case in point, while the movement towards independence edged higher, the real standouts in 2019 were Rockefeller Capital Management and First Republic Private Wealth Management.
- Some of the best transition deals are being offered outside of the wirehouses: Historically, wirehouse firms were the high bidders in the race for advisor talent. But firms like Rockefeller, First Republic, RBC Wealth Management, and Stifel Nicolaus stepped up to the plate in a big way and drew top talent with uber-attractive recruiting packages plus value propositions rooted in entrepreneurial spirit and culture. For example, RBC had a surge in recruiting including the huge win of a $7.5B UBS team in early December which was one of the biggest moves of the year; Rockefeller and First Republic captured 17 wirehouse advisors for over $18B in assets (as of this writing); and, after surpassing their industry-leading recruiting efforts of 2019, Stifel ended strong and started 2020 with $217M in new hires right out of the gate.
- Retire-in-place programs come with strings attached: Wirehouse advisors spent much of 2019 awaiting news of their firms’ enhanced sunset programs which they hoped would act as strong motivators to stay put. But many found the efforts to tie them further to their firms as offensive—and that belief in and of itself fueled movement.
Ultimately, these retire-in-place programs are part of a growing arsenal of retention efforts by the big firms to further bind their advisors, paving the way for what some advisors worry will lead to a salary-bonus compensation model. Regardless, many close-to-retirement advisors will take advantage of these programs as a way to monetize their life’s work.
- The mainstreaming of independence: The growth of the independent space has flourished throughout the past decade, exiting the “early adopters” stage and moving on to mainstream. The level of advisor interest seems to have exploded last year: In fact, in our own podcast series on independence, we saw a 60% increase in listener downloads. But it’s the growth of the industry itself that’s most telling: Barron’s reported that the number of RIAs soared to 12,993 in 2019, with assets under management at over $83 trillion; and most every firm in the ecosystem that supports the breakaway movement reported a tremendous uptick in revenue.
Advisors continued to relax their fears of the unknown when it came to changing models—the result of a growing cottage industry of support and turnkey models, with easy access to capital and open architecture.
- Mergers and acquisitions soaring to record levels: For RIAs, 2019 proved to be particularly frothy with acquisition multiples at an all-time high. For those business owners looking to achieve scale, accelerate growth and solve for succession, there was no shortage of motivated buyers and investors. As such, Fidelity Clearing and Custody Solutions reported the movement of $146B in assets via M&A through November—34% over YTD 2018.
But it’s not just RIA firms that are taking advantage of acquisition opportunities. There were two mega-deal announcements, starting with the $750mm Goldman Sachs purchase of RIA rollup firm United Capital in July. And as we closed out 2019, the attention was on Schwab’s acquisition of TD Ameritrade, a move that drove their market cap to a combined total of $91B as of this writing—eclipsing those of Goldman Sachs ($82B) and Morgan Stanley ($85B). Both of these deals serving as strong indicators of the power and potential of the independent space.
What we expect for 2020
As 2020 marks the start of a new decade, we find ourselves contemplating a future in the wealth management space that looks very different from that of decades past. In a world where change is the norm, it’s nearly impossible to know for certain what lies ahead. For now, we’re in the perfect storm—where the confluence of changing advisor sentiment, client expectations and retention efforts by the big brokerage firms will drive the evolution of the industry. As such, we expect these 9 trends:
- The momentum of movement – particularly among elite advisors and multi-generational teams – will remain strong.
- The breakaway movement – in which wirehouse advisors leave the familiarity of employee status to become business owners – will advance as the prospect of building long-term enterprise value becomes more important to advisors.
- Firms like Rockefeller, First Republic and RBC will continue to hit it out of the park—offering an entrepreneurial culture with a cherry on top: attractive deals.
- Independent firms will start to experience a “breakaway trend” as non-owner advisors will leave with greater frequency to either launch their own firms or become next gen successors to a growing population of aging firm owners.
- The wirehouses will get back to recruiting more aggressively, particularly top-of-the food-chain advisors. Morgan Stanley has already shown themselves to be back in the game and Wells Fargo is rebounding from the impact negative press had on its brand. It’s hard to imagine that UBS and Merrill Lynch will not follow suit.
- With an upcoming presidential election and markets at an all-time high, advisors will look to capitalize on an environment that has driven their businesses to new highs and consider this the right time to make a move.
- While many retiring advisors will choose the path of least resistance by opting-in to their firms retire-in-place programs, it’s likely to bring about discontent between some senior advisors and their next gen talent—because they’ll be looking at their futures through different lenses.
- Robust M&A activity will persist in the independent space—with industry leaders agreeing that there is plenty of potential and deep pockets eager to invest in the right businesses.
- The waterfall of possibilities will continue to expand in response to changing advisor sentiment and client demands—with a plethora of opportunities and options for those who seek them.
While the wealth management industry has already gone through an extensive evolution, this “perfect storm” could be the setup for even greater levels of transformation—a real opportunity for advisors to be the driving force that further defines and reshapes the industry, and for smart and savvy firms to answer their call.
It is indeed a seller’s market for advisors, where increased optionality is giving advisors every opportunity to pursue what is best aligned with their own values. The question remains, will they take advantage of what lies before them?
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