Wirehouse to Independence

We chose this case study to provide a snapshot of a “move” that, for many reasons, is particularly instructive. We work with a broad spectrum of advisors, and this case study is one of their stories.

Diamond Consultants began speaking with “Mitch,” a 25-year, well-known wirehouse veteran in a Midwestern city in 2008. At the time, he was successful and entrenched in his firm with no plans for a move – especially not a move to another wirehouse since all the big names were being bashed in the media. Fast forward to April 2009 and Mitch had about $2.5 million in annual production and nearly $400 million in primarily fee-based assets under management. His career history only included two big firms, but his view of the wirehouse model was becoming more negative as the industry was imploding. He determined that it was time to explore alternatives. Given that he was not motivated by upfront money and didn’t need a “deal” to move, he could finally turn his attention to his real heart’s desire – independence. He wanted to control his own destiny and have ultimate freedom to do what was in the best interest of his clients. Furthermore, he was confident that he could run his business more profitably than his wirehouse firm and he could be ahead economically in short order.

The Meetings

With our guidance, and to help Mitch further sort out his vision of independence, he met with several custodians and their client RIAs to explore possibly “tucking in” to one of those. For one reason or another, however, either the economics, culture, or investment model didn’t work for Mitch with those firms and he realized that joining an established firm was not independent enough for him. The process confirmed for Mitch that he indeed needed to create his own firm to achieve everything he wanted, but he concluded that he wanted to outsource the back office work so that he could focus on his core competencies, namely client-related activities. We introduced him to a third party “service provider” to handle those back office responsibilities and Mitch became very excited about creating his own firm, brand and culture without the headaches and distractions of the day-to-day minutiae of running a business.

The Model

Service Providers such as Concert Wealth Management and Washington Wealth Management have gained momentum in recent years as more wirehouse advisors seek to go independent without having to give up control or equity in their businesses and still off-load some operational responsibilities. These providers essentially rent out their back office services and their platforms to advisors who desire this arrangement.

Note: Another leading service provider in this space today – designed for the top 2-3% of independent advisors – is Dynasty Financial Partners. Dynasty offers a customized open-architecture platform that integrates technology, reporting, custody, investment management, and alternative strategies. The firm also works with advisors who want to sell a piece of or their entire firm to a private equity firm or strategic acquirer. In those cases, advisors can maintain control of their firm and still gain liquidity, and have Dynasty’s world-class platform behind them.

The Wrap-Up

In January 2010, Mitch left his firm with his Client Associate and, in association with Concert, formed his own LLC. He also established a relationship with a friendly broker dealer for the occasional commission-based business he did.

The key differentiators

Why Mitch Chose Independence with Concert

• Ability to self-brand, own his clients, dictate the direction of his business and work in the best interest of his clients
• Ability to use multiple custodians, which helps to negotiate competitive pricing
• Access to institutional level capabilities that would not otherwise be available to 
a stand-alone advisor
• Provision of an office that was up and running for him before he started, and 
access to support staff on the ground to assist with the transition
• Ability to outsource all operations and to have everything tailored to his specific 
needs including furniture and office supplies
• Ability to build equity in his own firm
• Superior economics for himself and his clients

The transition went off seamlessly and Concert provided all back-office support as well as legal and compliance services. Mitch spends the majority of his time focusing exclusively on investment issues and client needs. Although he had some initial concern about feeling isolated in his office, several colleagues expressed interest in sharing core services in the future. For that reason, Mitch selected class “A” office space with room to grow. Since its inception, Mitch’s firm has become one of the country’s fastest growing advisory firms, seeing an increase in assets under management of more than $15 million per month.

The Lesson

Mitch had to get a better sense of the options that existed within the independent space before he could make a smart choice. He didn’t know he wanted to create his own firm and how limited he was in his growth until he started the exploration process. Like Mitch, more financial advisors than ever are beginning to think about alternatives beyond the wirehouses, and today they have more practice models to choose from than ever before depending on the degree of independence and short and long-term economics desired.

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