No one could have predicted what 2020 had in store for us, yet through it all, many advisors are finding themselves better off because of it. How is that possible?
As I write this at the beginning of December, I find myself wondering where this year has gone.
There are times when March (and all that the Covid pandemic brought with it) seems like a lifetime ago—yet we’re reminded daily that quarantines, remote working and masks are still very much a part of our lives.
But the end of 2020 is in sight. Unprecedented as it was. Bizarre, uncertain and hopeful all at once.
And even more unprecedented is that through it all, most advisors report having the best years of their careers.
No one could have predicted what 2020 had in store for us, least of all me, even as I wrote my annual year-end predictions piece at this time last year.
At the end of 2019, I noted that “the intersection of 3 forces – changing advisor sentiment, reshaped client expectations, and powerful retention efforts by the brokerage firms – laid the groundwork for a world where advisors have the upper hand.”
And I wondered, at the time, if advisors would take it. That is, would they jump at the chance to regain control and shift the balance of power in their favor?
The answer to that question – even with the disturbances brought about by Covid – is a resounding, “yes.”
Advisors at all levels proved this year that they held all the cards—and took control when they needed to most, to ensure their clients were cared for in the best way possible in what was the worst of times.
And ultimately, advisors unhappy with the status quo chose to move to where they felt that they and their clients would be better served.
In fact, according to a recent report by Cerulli, despite the pandemic, persistent unemployment in other sectors and a rollercoaster market, advisor movement has been incredibly robust this year. After a dip at the end of the first quarter, Q2 finished off strong, and year-end projections estimate that 9% of all advisors will change firms or models in 2020—representing the greatest amount of movement in the past decade.
Even in the midst of a year no one saw coming.
And, the winners in the recruiting race have been all over the map. To be sure, the independent space has captured its share of top advisor talent but so have the wirehouses, JP Morgan Advisors, RBC and Stifel, Rockefeller Capital Management and First Republic Wealth Management.
Still, many wonder why advisors would entertain a move during a pandemic. The reality is that work-from-home mandates gave advisors the time for self-reflection and the privacy to evaluate other options without interruption. And firms were successful in demonstrating their value propositions effectively—even without the ability to host advisors “in person” for home office visits.
But it was even more than that. The new lens through which advisors viewed their business lives opened their eyes to the fact that they desire freedom of choice more than anything—including whether they go to their office, meet with clients, sell bank products and how they market themselves.
This experience enabled them to see the truth that many knew all along—yet were too busy with the day-to-day and running right past it.
Perhaps most notable this year was the fact that the wirehouses aggressively got back in the recruiting game, working hard to make up for market share lost in the past 5 years—with the only exception being Merrill Lynch, which is instead focusing its recruiting efforts on next gen talent for its Accelerated Growth and Community Markets Program. Conversely, Morgan Stanley, UBS and Wells Fargo are all in.
Yet what’s driving movement most is that advisors have come to view their businesses as businesses, and as such, are looking to build robust enterprises that have real value at the end of the day.
And in response to this, the landscape has evolved right at their feet.
There are now more turnkey models that offer advisors the ability to be independent business owners, with varying degrees of ownership and support. And plenty of capital options – including a host of investors – for those looking to monetize and de-risk a move.
And this new world of choice is good for all – advisors and clients alike – paving the way to personalize the client experience and grow individual advisory businesses like never before.
So while 2020 brought with it an environment like never before, advisors proved their tenacity and rose to the challenge. “The year unlike any other” left in its wake a host of change – much of it positive – and the potential of a new world order for wealth management in 2021.
All that said, there’s a certain groundwork that’s been laid for 10 trends emerging in 2021.
10 Trends Advisors Need to Pay Attention to in 2021
- Lots more movement.
Whether it’s because advisors will emerge from a post-Covid world with a new perspective, or because their current firms frustrate them and push them to the brink, movement will be even more robust next year than it was in 2020. - Independence will remain a very popular option, particularly amongst top advisors.
As advisors demand more freedom and control, they will continue to vote with their feet and break away from traditional brokerages. Firms like Sanctuary Wealth, Dynasty Financial Partners and LPL Financial filled the gap that once prevented many entrepreneurial-minded advisors from making the leap to independence. These models allow advisors to grow their businesses scaffolded by a turnkey infrastructure, top-tier technology, M&A support and access to transition capital. “Supported independence” is maturing rapidly and still has plenty of room to grow—particularly as more and more advisors look for faster pathways to independence. - W-2 firms will unequivocally continue to pick up market share.
Firms like Rockefeller Capital Management, First Republic Wealth Management, JP Morgan Advisors, RBC and Stifel will continue to crush it. Yet it’s the big brokerage firms that are coming back with a vengeance. Morgan Stanley, UBS and Wells Fargo are kicking butt on many levels already and are particularly attractive to advisors who are looking for a change but want to remain in an employee model they are familiar with. And interestingly, Cerulli recently reported that wirehouse advisors are by far the most productive advisors, averaging $175mm in assets per advisor. Why is that? They credit the firms’ drive in focusing on more affluent clients, plus large investments in technology to improve operational performance. Ultimately, big firms are leveraging the advantage of scale—and it seems to be working. - Generally speaking, Merrill Lynch advisors are the most unhappy out of all wirehouse advisors, and they will continue to change jerseys at a fast pace.
In fact, Merrill has seen more attrition in 2019 and 2020 than Morgan and UBS combined. The push to sell bank products, circumvention of advisors by bankers, increased bureaucracy, a heavy-handed compliance culture, prohibitions on meeting clients face-to-face or returning to their offices due to strict Covid protocols—each exacerbates a discontent that Merrill advisors had already been feeling. Plus, the question of whether Merrill will remain in the Protocol for Broker Recruiting still looms in the background—with many advisors opting to move sooner rather than later to take advantage of a less risky transition process. Until Merrill shows signs of shifting its focus to better supporting its advisor force, this attrition is likely to continue. - Recruiting deals will continue to be at high watermarks.
Today, transition packages being offered to incent top advisor movement are at near high watermarks. We emphasize “top” because deals for multi-million-dollar teams in growth mode are in the 300-350%+ range, depending upon the firm. But most firms are only selectively interested in less productive advisors. - Many advisors have negative feelings about working for a bank, but they’re embracing exceptions.
One of the most common refrains from those at bank-owned firms is, “I never want to work for a bank again.” Ultimately, the entrepreneurial thinking of wealth management and the conservative mindset of bankers just don’t mesh. And yet despite this disconnect, many advisors are running towards bank-owned firms like First Republic, viewing it as “different” from other banks. Why? They offer the best of all worlds: The strength of a well-capitalized firm with a great reputation, plus a strong referral mechanism and robust lending capabilities, layered upon an entrepreneurial culture. Plus, the cherry on top is the industry-leading transition package they’re offering. It’s a combination that has attracted many top advisors and teams and is expected only to grow stronger in the coming year. - An increase in the popularity of multi-channel firms.
Raymond James, Wells Fargo and Ameriprise had the market cornered on this construct—one where an advisor could join as a W-2 employee and easily migrate to independence. But today, firms like LPL, Commonwealth, and RBC have joined the ranks and we anticipate more to follow suit. Plus, rumors this year that Goldman Sachs will be getting into the RIA custody world is a real shot across the bow: With Goldman playing in the space, we have to wonder what other big firms will be doing so in the future. - Younger advisors are migrating to independence much earlier than their predecessors.
Unlike the generation of advisors past, the “new gen” of advisors grew up in a world where the freedom to communicate via social media, self-brand and differentiate themselves is an expectation. So they’re feeling handcuffed by the bureaucracy and heavy-handed compliance of brokerage firms and are looking for the freedom to serve their clients as they see fit while building equity for themselves. And with a longer runway to retirement, they will have a real opportunity to create enormous enterprise value and participate in an active M&A marketplace. - Next gen advisors will be more proactive in pushing their senior partners to consider options beyond their firm’s retire-in-place sunset programs.
As firms are working hard to retain their advisor force, the voice of the next gen will be more impactful than ever before. These younger advisors are more concerned about being locked up for the next 5-to-7 years with programs like Merrill’s CTP, UBS’s ALFA and Morgan’s FFAP and the negative impact that lack of optionality will have on their overall career development. They’ll strive to become more educated consumers—to get a clear understanding of what they’re gaining and what they’re giving up, and how programs like these could affect their clients and the business overall. We anticipate this will be one of the strongest trends we’ll see in the coming year, as more next gen advisors push their retirement age partners to explore options outside their firms. - “Work From Home” will continue to reshape the wealth management space as we know it.
Even as of this writing, many advisors are still working from home. And while it was awkward for everyone at first, the majority of folks have shared that they didn’t miss a beat. They were more productive and able to be in better contact with their clients. And they proved to be adaptable, recognizing that change wasn’t necessarily a bad thing. They learned that even while their firms may have been good partners, working more “independently” was a positive experience. Recognizing how self-sufficient they are, this experience will likely drive more towards independence.
Ultimately, regardless of where advisors choose to practice, they will continue to prize control more than anything and to demand much more from their firms. And they’ve proven that they have the tenacity, drive and courage to change where they practice if or when the status quo no longer meets their needs.
2021 will enforce the feeling of independence for each and every advisor—even those at the big brokerages.
Because at the end of the day, advisors have recognized their destiny is in their own hands. But it’s the next gen that will likely be the real changemakers in the coming year.
As we bid good riddance to 2020, there’s much to be grateful for—and plenty to look forward to.
