Breakaway Advisors Say Going Indie Was Worth It: Schwab

Ready to break on through to the other side?

The RIA industry is close to becoming a $9 trillion industry and is one of the fastest-growing segments of the financial services space. In fact, the number of independent firms has roughly doubled between 2000 and 2022, according to Charles Schwab Advisor Services. Independent advisors say they can better serve their clients’ best interest without having to worry about the commission structure that dominates traditional brokerage firms.

But launching an independent practice comes with serious lifestyle and business risks. A major concern is holding onto assets under management and ensuring that clients make the transition from a brokerage to a registered investment advisor. The other big one is financing, which advisors say is a major obstacle to opening up a business venture.

A recent study by Schwab surveyed both advisors considering independence and those who recently made the jump, to better understand the driving factors that are propelling advisors to leave the big-name brokerages and open up their own advisory practices.

Light My Fire

Going indie may be daunting, but very few advisors who did so regret their decision. Almost eight in 10 advisors (79%) surveyed said they would make the decision to become an independent registered investment advisor again, and more than seven in 10 (76%) are happier now as an independent RIA, according to the survey of more than 200 brokers and breakaway advisors. 

“Advisors are often looking for someone to hold their hand and guide them through the process of transitioning,” Schwab Advisor Services’ COO Jon Beatty told The Daily Upside. “In some cases, that guide might be another advisor.”

The predominant motivation behind the moves is being able to offer clients the best investment options for them – not for their firms. “I just want to be independent,” said one advisor and survey participant, who remained anonymous when discussing a potential break from his current firm. “When it comes to picking investments, I want to look my client in the eye and say, ‘Hey, this is the best choice based on your needs.’” 

Here are some key findings from the survey:

• Advisors have more options than ever when it comes to opening up their own practices.
• RIAs have greater independence and flexibility with investment decisions and compensation structures.
• The risks include losing access to a wirehouse’s massive companies’ sales and market support, as well as regulatory and legal departments.
• Independent RIAs still reported being happier on their own.

Freedom Isn’t Free

The biggest challenges advisors have to navigate are regulatory and compliance-based, Beatty said. Many advisors who are thinking about making the transition are coming from firms that have dedicated compliance departments, so there will likely be a “steep learning curve.”

No surprise that the other major consideration is funding. “Financing is also a concern for transitioning advisors,” Beatty told The Daily Upside. “Starting any new business can be expensive, and even joining a firm entails some financial considerations, such as whether the compensation structure meets your needs.”

The good news is that clients want an independent model that gives them the peace of mind of knowing their advisor is always acting in their best interest, he said. That means most clients will likely be accepting of the change.

Join The Party

The breakaway movement is a massive one: more advisors are going into the independent advisor channel than any other option, including moving to wirehouses or regional broker-dealers, according to a February report by recruiting firm Diamond Consultants. Around 563 highly experienced advisors who were looking for a new home decided to join the independent channel last year, while wirehouses continued to see an exodus of talent. Around 348 advisors left the big brokerage firms last year alone. 

In addition to enjoying the new found freedom, almost seven in 10 advisors (69%) said they should have made the decision to become independent sooner and more than six in 10 (67%) would recommend becoming an RIA to other advisors.

The vast majority of participants in the Charles Schwab survey worked for an IBD or brokerage firm and are considering transitioning to independence in the next three years.

“Advisors want to learn from each other and share their experiences,” Beatty said, “and that speaks to the vibrant community that has grown up around the RIA model.”