What Drives Advisors to Go Independent?

What Drives Advisors to Go Independent?

Wirehouse advisors do not launch RIAs on a whim.  After years of toiling away in the captive employee model, building a book of business and having the privilege of earning client trust and loyalty, they have a pretty good gig going.  Many advisors, rightfully so, have the attitude that the devil you know is better than the devil you don’t.  But as the RIA industry continues to gain client assets (see described Cerulli report) and more and more wirehouse advisors make the switch to the independent model, curiosity tends to set in, and advisors begin to focus on three questions:

  1. Should I Stay?
  2. Should I Go?
  3. If I Go, How Do I Do It?
     

We covered question #1 in our previous post (see: Part 1) and all the legitimate reasons an advisor would choose to stay an employee at a large bank/brokerage firm/wirehouse.  Here, I would like to focus on what drives advisors to take that leap of faith and finally determine that the grass is in fact greener on the other (independent) side.

“Should I Go?” or “Why Go Independent?”


The one thing keeping wirehouse advisors in their current position is the thought that the large brand behind them is important to their clients.  For every advisor seriously considering starting their own RIA, they have given up on the culture/brand that they have been displaying on their business card for the duration of their careers.  Many Merrill Lynch advisors feel that Bank of America has ruined the “thundering herd” brand that they proudly joined decades ago.  Often, UBS advisors are frustrated with foreign ownership and the uncertainty surrounding the long-term plans for wealth management at the parent firm.  Many Morgan Stanley advisors have been upset for years following the cultural integration issues of the Smith Barney merger.  And most Wells Fargo advisors are running from the negative headlines surrounding the cross-selling and illegal account opening scandal that rocked them last year.

On top of that, the compensation grid always seems to change in favor of the wirehouse and against the advisor.  Those looking to become business owners are seeking operating leverage for the first time in their careers.  Top advisors within the wirehouse community are paid on a 42% payout grid, which means for every dollar of revenue their clients produce, the advisor takes home 42%.  In contrast, RIAs can attain profit margins of 65% – a 23% increase in take-home pay from the wirehouse model.  Additionally, profitability increases for every new dollar brought in, as opposed to the fixed 42% payout at the wirehouse.  When advisors fully embrace the concept of operating leverage and the ability to expand profitability as a business owner rather than an employee, they get very serious about the RIA model.

Advisors contemplating Independence are also excited about the prospect of improving the technology tools used to deliver their services to clients, as well as the ability to report and advise on all client assets, regardless of where they are held.  By removing the compliance handcuffs and implementing fairly basic aggregation software, the RIA advisor is able to pull in outside assets onto the client’s quarterly performance reports, which immediately elevates the advisor in the mind of the client – for the first time in his/her career, the advisor is able to truly advise on the client’s entire net worth, including the liability side of the balance sheet (see PFI Advisors’ white paper: “Innovative Lending Solutions in the RIA Space”).

Speaking of Compliance, top advisors are exhausted from the internal battles that result from the fact the branch offices are built around and managed to the lowest common denominator.  It is quite common for advisors to go to management with an investment opportunity they would like to show their clients, only to be told that while they might be able to offer this in a compliant fashion, management fears that the younger advisors in the office would get everyone sued if they tried to offer this sophisticated investment to their clients.  Since investment opportunities must be offered uniformly by all advisors to their clients, this frustration occurs more often than not when a top-performing advisor tries to find innovative solutions for their clients.

The idea that compliance at an RIA can be structured to protect the client and the advisor, and not solely to protect the firm, is very appealing to wirehouse advisors.  Knowing that the marketing roadblocks will be removed around social media and the ability to market themselves as a distinguished firm rather than individual employees of a larger organization with identical web pages every other advisor has under the shared brand, makes these advisors ecstatic. They will have the freedom to position themselves and brand their RIA to their unique niche, finally differentiating themselves from the competition.

Succession planning and the opportunity to build a brand and a firm with legacy is very attractive to advisors who are considering the move to Independence.  While some advisors have a hard time seeing past the short-term benefits of a large recruiting check from another wirehouse, it has been proven that the long-term economics favor starting an RIA and building equity over time.  Mindy Diamond recently published a research piece spelling out the math for advisors considering making a move: (”The Math Behind the Move to Independence”).  PFI Advisors has written about it in the past as well: (“Long Game of Starting an RIA”).  Advisors are opening their eyes and doing the math for themselves.

In the end, the biggest thing on the mind of an advisor about whether to start his/her own RIA is the sheer excitement to finally own their own destiny.  They now control who their clients are, what they can charge their clients, what products and services they feel best serve their clients, where clients hold their assets, and what product providers offer the best solutions for their clients.  Regardless of the current state of the Fiduciary Standard in Washington, advisors attracted to the RIA industry feel that they must make this change if they want to best serve their clients.

Once this decision has been made, there is one last question on their minds: “How on earth do I do this?”  That question will be answered in my next post!

Larissa Marcontell Sonnen
Advisors in Transition
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Larissa Sonnen is Co-founder and Chief Operating Officer of PFI Advisors LLC. She handles the day-to-day operations of the firm and provides experience and expertise both in t ... Click for full bio

Rosie the Robot, Amazon, and the Future of RAAI

Rosie the Robot, Amazon, and the Future of RAAI

Written by: Travis Briggs, CEO at ROBO Global US

It’s tough to find a kid out there who hasn’t dreamed about robots. Long before artificial intelligence existed in the real world, the idea of a non-human entity that could act and think like a human has been rooted in our imaginations. According to Greek legends, Cadmus turned dragon teeth into soldiers, Hephaestus fabricated tables that could “walk” on their own three legs, and Talos, perhaps the original “Tin Man,” defended Crete. Of course, in our own times, modern storytellers have added hundreds of new examples to the mix. Many of us grew up watching Rosie the Robot on The Jetsons. As we got older, the stories got more sophisticated. “Hal” in 2001: A Space Odyssey was soon followed by R2-D2 and C-3PO in the original Star Wars trilogy. RoboCop, Interstellar, and Ex Machina are just a few of the recent additions to the list.

Maybe it’s because these stories are such a part of our culture that few people realize just how far robotics has advanced today—and that artificial intelligence is anything but a futuristic fantasy. Ask anyone outside the industry how modern-day robots and artificial intelligence (AI) are used in the real world, and the answers are usually pretty generic. Surgical robots. Self-driving cars. Amazon’s Alexa. What remains a mystery to most is the immense and fast-growing role the combination of robotics automation and artificial intelligence, or RAAI (pronounced “ray”), plays in nearly every aspect of our everyday lives.

Today, shopping online is something most of us take for granted, and yet eCommerce is still in its relative infancy. Despite double-digit growth in the past four years, only 8% of total retail spending is currently done online. That number is growing every day. Business headlines in July announced that Amazon was on a hiring spree to add another 50K fulfillment employees to its already massive workforce. While that certainly reflects the shift from brick-and-mortar to web-based retail, it doesn’t even begin to tell the story of what this growth means for the technology and application firms that deliver the RAAI tools required to support the momentum of eCommerce. In 2017, only 5% of the warehouses that fuel eCommerce are even partially automated. This means that to keep up with demand, the application of RAAI will have to accelerate—and fast. In fact, RAAI is a key driver of success for top e-retailers like Amazon, Apple, and Wal-Mart as they strive to meet the explosion in online sales.

From an investor’s perspective, this fast-growing demand for robotics, automation and artificial intelligence is a promising opportunity—especially in logistics automation that includes the tools and technologies that drive efficiencies across complex retail supply chains. Considering the fact that four of the top ten supply chain automation players were acquired in the past three years, it’s clear that the industry is transforming rapidly. Amazon’s introduction of Prime delivery (which itself requires incredibly sophisticated logistics operations) was only made possible by its 2012 acquisition of Kiva Systems, the pioneer of autonomous mobile robots for warehouses and supply chains. Amazon recently upped the ante yet again with its recent acquisition of Whole Foods Market, which not only adds 450 warehouses to its immense logistics network, but is also expected to be a game-changer for the online grocery retail industry.

Clearly Amazon isn’t the only major driver of innovation in logistics automation. It’s just the largest, at least for the moment. It’s no wonder that many RAAI companies have outperformed the S&P500 in the past three years. And while some investors have worried that the RAAI movement is at risk of creating its own tech bubble, the growth of eCommerce is showing no signs of reaching a peak. In fact, if the online retail industry comes even close to achieving the growth predicted—of doubling to an amazing $4 trillion by 2020—it’s likely that logistics automation is still in the early stages of adoption. For best-of-breed players in every area of logistics automation, from equipment, software, and services to supply chain automation technology providers, the potential for growth is tremendous.

How can investors take advantage of the growth in robotics, automation, and artificial intelligence?


One simple way to track the performance of these markets is through the ROBO Global Robotics & Automation Index. The logistics subsector currently accounts for around 9% of the index and is the best performing subsector since its inception. The index includes leading players in every area of RAAI, including material handling systems, automated storage and retrieval systems, enterprise asset intelligence, and supply chain management software across a wide range of geographies and market capitalizations. Our index is research based and we apply quality filters to identify the best high growth companies that enable this infrastructure and technology that is driving the revolution in the retail and distribution world.

When I was a kid, I may have dreamed of having a Rosie the Robot of my own to help do my chores, but I certainly had no idea how her 21st century successors would revolutionize how we shop, where we shop, and even how we receive what we buy - often via delivery to our doorstep on the very same day. Of course, the use of RAAI is by no means limited to eCommerce. It’s driving transformative change in nearly every industry. But when it comes to enabling the logistics automation required to support a level of growth rarely seen in any industry, RAAI has a lot of legs to stand on—even if those “legs” are anything but human.

To learn more, download A Look Into Logistics Automation, our July 2017 whitepaper on the evolution and opportunity of logistics automation.


The ROBO Global® Robotics and Automation Index and the ROBO Global® Robotics and Automation UCITS Index (the “Indices”) are the property of ROBO who have contracted with Solactive AG to calculate and maintain the Indices. Past performance of an index is not a guarantee of future results. It is not intended that anything stated above should be construed as an offer or invitation to buy or sell any investment in any Investment Fund or other investment vehicle referred to in this website, or for potential investors to engage in any investment activity.
ROBO Global
Robotics and AI
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ROBO Global LLC is the creator of the ROBO Global® Robotics and Automation Index series, which provides comprehensive, transparent and diversified benchmarks representing the ... Click for full bio