Wirehouse advisors seeking independence may not have to break away. They can operate as “captive independents” within their existing firms. But will this model be independent enough?
Earlier this month, AdvisorHub reported that UBS was about to launch a “business to serve independent advisors.” Although the article was scant on details, and no other publication has written about it since, I’ve had many conversations with advisors that have yet to be resolved.
Even if the article was a gilded version of the rumor that’s been circling for some time, the premise is significant nonetheless.
While wirehouses have long refused to acknowledge the momentum towards independence – often dismissing any “breakaway” losses as one-offs and anomalies – the trend is undeniable. Over the past decade, even the biggest naysayers have found it hard to rebuff the validity of the exodus as they watched so many multi-billion dollar teams leave the brokerage world to launch their own independent firms.
The story about UBS signifies the beginnings of a thought-transition amongst the big firms. That is, it is an acknowledgment that the independent space is indeed valid and worthy of not only their attention, but also their participation. And it makes sense; here’s why:
- It’s a great way to stave off advisor attrition – and keep top talent in-house.
- It’s better for clients – allowing advisors to offer more customized service models.
- It acknowledges changing advisor sentiment – and provides a pathway to better align with these changes.
- It’s a reality that’s not going away.
With so many advisors serving high-net worth and ultra-high net worth clients, brokerages are looking for ways to retain these corner-office folks – offering them the allure of independence right in their own backyard.
What would an independent model launched by a wirehouse look like?
An independent arm within a wirehouse is one I would call “captive independence.” And it’s not something entirely new: Raymond James and Wells Fargo have been offering an independent broker-dealer option for years.
The option to go independent, while remaining with the same firm, has many benefits. For instance, it’s the path of least friction for advisors looking for more freedom and flexibility combined with the guardrails of a big-name firm they already know. Portability of clients shouldn’t be an issue as the advisor is staying within the firm – that is, going “independent in place” – making it an easier move to explain to clients.
But the end result is likely not as independent as an advisor might think.
In such a model, an advisor would be required to use the firm’s platform and technology, and to operate under the corporate ADV. Unlike the RIA space, there would be limitations on the ability to self-brand or participate in social media. Also, unlike their RIA counterparts who can shop the street for products and services, advisors in this more captive model of independence would not have access to the whole of the market. Thus, advisors looking to act as true fiduciaries will still find themselves conflicted.
And from a financial perspective, the differences can be significant: The more limitations placed on a business, the less value it will actually have should the advisor seek to sell his or her practice.
Many more questions than answers
While some industry leaders wonder why a firm would trade its high-margin brokerage business for the low-margins of independence, others say it’s a necessary evil to stave off attrition. Basically, the wirehouses have reached the point of “if you can’t beat ’em, join ’em.”
UBS advisors I spoke with had mixed feelings about the AdvisorHub article. Some expressed concerns about how this might further tax UBS resources. Others wondered if this would cannibalize the employee workforce. Still, some felt that such a move towards independence might offer them the best of both worlds.
Decisions like these are not made in haste: I am certain that UBS and the other wirehouses have their top people in the labs working through ways to retain their dominant role in the competitive landscape, as well as in the hearts and minds of their advisors. Only when formal announcements are made will we know exactly where the firms stand and get many of the lingering questions answered.
In the meantime, news like this reminds us that the industry is evolving at a fairly rapid pace. Get familiar with the changing landscape and ensure that your firm is indeed the best place to serve your clients for the long-term. Take the time now to get educated so that when things do change, you’ll be ready.