Forward-thinking firms are tapping into the flourishing interest in independence by offering their employee advisors an independent option under the same roof. While it provides an easier path to greater freedom and business ownership, it may not be “independent enough” for advisors seeking ultimate control.
The idea of joining a firm and being able to choose how you affiliate with them at each phase of your career is gaining popularity. With one firm and one platform, advisors can transfer from an employee model to an independent model all under the same roof—with little disruption to their clients and their team.
This “choose your path” concept has been around for a while, pioneered by Raymond James, Ameriprise Financial and Wells Fargo, and used largely to accommodate existing advisors. However, these firms have leveraged the optionality to enhance their recruiting efforts.
The concept is appealing to advisors because it offers both traditional W-2 employee and independent platforms. Plus, it provides the benefits of a recruiting deal and a plug-and-play set up—and the option to move into an independent structure within the same firm down the road if they so choose. Essentially, these firms have built a platform that is designed to support an advisor for the lifetime of his career as his interest in different models changes overtime.
So much so, that other firms – like LPL Financial, Commonwealth Financial Network, Kestra Financial and RBC – have jumped on the bandwagon. And we’re finding that advisors see value in the choice these firms offer even if they may never take advantage of switching between models.
Who finds the multi-channel model most appealing?
For many advisors the concept of independence is intriguing, yet it may not be the right move at this stage of their career (although these models allow advisors to go in any direction). We find those who are most drawn to the multiple affiliation model include:
- Advisors who have longer runways but want to monetize their business before making the leap to independence.
- Multi-generational teams in which the senior team member wants to monetize while maintaining the infrastructure of a big firm, leaving the option for the next gen advisor to slide into the independent channel in the future.
- Advisors who want more control over how they run their business today given they’ll have the option for independence as a hedge against the future.
Yet as with any model there are advantages and potential disadvantages that advisors need to be aware of.
The Advantages: What’s driving all the interest
For those advisors who may want independence in the future, multi-channel firms offer a glide path toward business ownership by eliminating many of the obstacles associated with launching their own firm. For example:
- Advisors don’t have to repaper. Advisors can avoid the significant logistical hurdles that often arise with changing firms—such as redistributing their accounts or requiring clients to complete new paperwork. The process of getting clients acclimated to the value proposition of a new firm is also eliminated.
- Processes and platforms remain the same. Since advisors are already familiar with their firm’s procedures and can leverage the same technology and investment platforms they were using previously, the move comes as less of a disruption. Clients benefit from that sense of stability too, as they retain the same online access, interfaces and statements.
- A great middle ground for multi-generational teams. Senior advisors can take advantage of a recruiting deal and maintain “familiar support” as employees, while making it easy for the next gen advisors to transition to independence in the future.
- The ability to retain assets. Multiple affiliation firms also have an advantage when it comes to client and asset retention: This “optionality” allows the advisor to “stay put” while gaining greater freedom and control in the independent channel.
The Potential Disadvantages: What advisors need to be aware of
While these advantages are driving many advisors to choose multi-channel firms, others are reluctant. Here’s why:
- Compliance and oversight are the same for all affiliations. Unlike full-on independence, independent advisors in multi-channel models do not have complete freedom in how they communicate with their clients and market or brand their firm, and therefore may feel constricted by the corporate oversight.
- Within the multi-channel firms, you’re limited to only what is available on their platform. Independent advisors at these firms are still beholden to their firm’s platform. As such, they can only leverage the technology, investment options and lending solutions made available by the firm. This precludes an advisor from “shopping the Street” and accessing off-platform options. Additionally, assets remain custodied at the firm rather than by a third-party, such as Schwab, Fidelity and BNY Mellon’s Pershing.
- Sliding from one channel to another may not be as seamless as it seems. Unfortunately, there are still many steps advisors must take in order to make a move at a multi-channel firm. Even though they may not have to transition their business, advisors transitioning to the independent model still have to go through the process of “creating” a new firm—including procuring real estate, designing a brand and other infrastructure requirements. Switching channels also requires advisors to have their manager or business unit head “sign off” on the change, which for some advisors, may not be a comfortable conversation.
- Being captive to a platform has an impact on the overall enterprise value of the business. Any time an advisor is “captive” to a broker dealer, they lack full control. That can limit growth and preclude some deep-pocketed and sophisticated buyers from bidding on the business, should the advisor decide to sell. And since competition drives valuations, firms in the RIA space – which maintain full control over their operating decisions – will typically receive higher purchase prices.
So, can one firm be all things to all advisors over their entire professional life? These firms are certainly trying. They allow advisors some control over how they run their business over different stages of their career. And while perfection doesn’t exist in the industry, it’s more likely that advisors can come to close to their definition of their ideal with models like this.