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Breakaway Advisors Aren’t Just a Wirehouse Problem

The independent advisory industry is growing larger than ever before, and that’s becoming a real problem for RIAs.

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Photo by Amtec via CC BY-SA 2.0

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Breakaway advisors aren’t just an issue for the big brokerages anymore. 

The RIA industry is larger than ever, topping $128 trillion in assets under management last year and growing. Attractive assets and revenue streams have fueled record M&A deals in recent years and opened up the door for monster private-equity firms to buy up businesses. That impressive consolidation may be starting to take its toll. 

Some 4 in 10 independent advisors now say they are considering leaving their current firm in a year or two, according to a July J.D. Power report. Over a quarter of those unhappy advisors are now a “flight risk,” and that has been driven in large part by changing company cultures, according to J.D. Power executive managing director Craig Martin. 

“With private equity coming in snapping up different firms, advisors are saying, ‘This is not what I signed up for,’” Martin told The Daily Upside. “You are more focused on growth than you are on me.” 

Please Don’t Go

While the top reason for leaving a firm was autonomy, the second-most common response was mergers or acquisitions. The RIA market announced 75 M&A deals in the second quarter, involving almost $1 trillion in assets under management, according to boutique investment bank Echelon Partners. It’s the second-most active Q2 in the last five years.

Those deals are forcing advisors to find greener pastures or to become part of the new, much larger firm as a result. “We definitely see this tendency with a lot of folks, where they’re not out the door, but they’re looking at this, and not loving where it’s going,” Martin said. 

Too Big and Failing. While employee advisors were happier at their firms this year, less than half of independent advisors strongly agree that their firm is headed in the right direction. While growth and expansion make sense from a strategic standpoint, advisors aren’t always on board. For many advisors, that big-firm feel is exactly what they broke away from in the first place. 

“Tenured advisors went to their firms because they wanted to be independent, but they’re now losing that,” Martin said. Support functions, like technology and operations, are often cited by advisors as being negatively impacted as the business grows, he added. 

The survey did find some bright spots. Commonwealth took the top spot in the independent channel for the 11th straight year, followed by Raymond James. In welcome news for Wells Fargo Advisors, the firm had the largest year-over-year increase in overall satisfaction in the study.