Day 2 at MSUM14 proved that the momentum we are sensing around independence for financial advisors is real, sustainable and will likely accelerate based on a burgeoning number of options available and a new breed of young investors ready to fuel them.
Experts agreed that it’s currently a seller’s market, although anything could change in this maturing – yet immature – industry. 2014 saw the emergence of a variety of options for the desire-to-be independent set with an array of aggregators, service providers and investors being born.
The desire for greater “control, flexibility and freedom” is the motivation behind many of the breakaway brokers’ choice to go independent. As one new RIA who left the wirehouse world only months ago put it, “I would have loved to have gone independent years ago, but the right option for me just didn’t exist. This time when I looked, I found a number of choices that would have given me turnkey set-up of my own business and the ability to get some cash up front so that I could pay back an EFL to my old firm.”
Expectations are that we have not seen the end of industry expansion, as more and more uber-entrepreneurial advisors are setting up their own shops. Although Eliot Spitzer said, “OPM (“Other People’s Money”) are the three most dangerous letters on Wall Street,” there is no shortage of capital options to fuel growth.
Even though billionaire businessman and investor Marc Cuban noted that he would “burn down the SEC” and start over, he’s the face of new investors (at least people who wish to be at his level) who are more actively involved in their investments. This new “engaged” investor will need advisors who are ready to manage their knowledge and expectations.
So what about funding these new start-ups? Traditional banks don’t generally understand the advisory business. Private lenders and investors are more cautious than ever, and have upped standards and cost of their capital. Yet options are out there. Take Live Oak Bank, for example. A community bank based in Wilmington, NC that lends to 7 unique niches – one of which is financial advisors – and word is that they are anxious to fund the start up of these new entrepreneurial ventures with low cost financing.
Alternatively, there are many options for the business owner that wants to sell a minority share of his/her equity in return for strategic and capital partnership and access to unique and sophisticated investment solutions. Private investors, private equity firms, larger RIAs and the like are all hungry to gain a foothold in the burgeoning advisory space. As the principal of a private equity firm told me today, “We are not looking to invest in many firms, but would love to invest in a few growing, fee-based, high quality RIAs that would value our strategic and capital partnership.”
“Momentum” can be described as something “on the move, that is going to take some effort to stop.” There is a “mass in motion” at play – the force for change and independence – that is proving to be far greater than the force to stay and accept less flexibility and control.
I’ve said it before and it’s proving to be true: there really has been no better time to consider the options available to live your best business life.
More to come…