While wirehouses have long encouraged advisors to form teams, it’s a retention measure that’s backfiring: Many of these teams have become self-sufficient machines, better prepared to make the leap to independence.
The formation of teams within big brokerage firms is often seen as a win-win scenario. For advisors, there is strength in numbers when serving clients and building their businesses. For the firms they work for, teams represent an even bigger advantage and a hidden retention agenda: That is, it’s harder to recruit away a group of advisors than it is an individual because solving for varied risk tolerances and divergent sensibilities amongst multiple constituents can be far more challenging.
Yet, powerful retention tool aside, the trend of big teams leaving the wirehouse world to build their own independent firms continues to grow.
The rise of the “self-sufficient machines”
One of the unintended consequences of building strong teams is that as they grow, they have the tendency to set themselves up as their own “sovereign entities” within the broader organization. As a result, they tend to rely less on the firm’s resources and infrastructure, and more upon their own systems which they’ve developed over time to better align with their clients’ needs.
Essentially, these teams become “self-sufficient machines”—more insulated from the firm and better prepared to leave and build their own independent businesses.
Case in point: Consider 6 Meridian, a $2.5B RIA in Wichita, Kansas. Born in 2016 from a Morgan Stanley breakaway team, they reached a point where they were operating autonomously from the brokerage firm and self-investing in their own practice. As CEO and founding partner Margaret Dechant shared in a recent podcast interview with me: “We built-out our own investment platform. We identified our target market and created a marketing and branding strategy around those target markets. We hosted our own events and hired our own staff. We invested in the business just like we owned it.”
When a business becomes a “business”
As more and more of these mega-teams look at their businesses as “businesses,” profitability comes under greater scrutiny. That’s when partners often reach an “aha moment”—that is, as Margaret described it, when you realize that you’re “giving the firm in the vicinity of 60% of every dollar that clients pay you for nothing more than a place to sit and to use the firm’s technology.”
And it’s then that many of these teams recognize that their “business” has a better opportunity of realizing its full potential as an independent firm—outside of the confines of a big brokerage house.
By our count, eight billion-dollar-plus teams reportedly have left the wirehouse world so far this year to build their own firms or join hybrid independent firms. And while the pricey tariff advisors are forced to pay their firm is one of many motivations for breaking away, it’s the sheer ability to do more without limitations that’s really driving the movement.
The team at 6 Meridian was looking to serve their clients with the freedom to run and own the financial relationship. “We were not able to achieve that at Morgan Stanley to the level we are able to today as business owners,” she shared.
Like Margaret and her partners, these advisors find that they may be looking to offer options or strategies to their clients that their firm doesn’t support—that’s when they hit a wall. For example, 6 Meridian wanted to expand on the services and solutions they could offer their clients, such as true family office services, tax planning and preparation, bill pay, access to private investments, and bespoke alternatives—all things that high net worth and ultra-high net worth clients typically expect from their advisors.
But the reality is that big brokerages manage to the masses, and in doing so, it often comes down to the fact that if the firms cannot make such services available to all, then it’s not an option for a chosen few. So, for these big teams, it means choosing to do what’s best for the clients versus what the firm will allow them to do.
While solo advisors may find it overwhelming to explore their options or even consider setting up their own independent practices, big teams have the advantage of being able to divide and conquer the due diligence process. The other advantage of these finely-tuned units is that individual members have experience in navigating operations, vetting technology or building infrastructure.
It’s the self-sufficient nature of these teams, along with their willingness and ability to invest in their own businesses, which have made them the powerhouses that they are—and all the more prepared to take that to the next level as their own independent firms. With an expanded landscape and many options to assist them in making the leap, these teams have both an advantage and an opportunity to succeed—indeed, a result the big firms were not counting on.