New AI Technology Is Fueling the $784B Breakaway Movement

The hottest advisor trend on Wall Street right now may be ghosting the wirehouses.

The multi-decade trend of financial advisors breaking up with their traditional brokerage firm channels and moving into the independent registered investment advisory channel is only getting stronger as arguments for the transitions multiply. Sure, it’s about more control and more capabilities, which have become the driving factors leading advisors to break away from traditional firms. But many advisors are also looking around, watching their peers go independent, and thinking: Why not me? “It’s all about the desire for more,” said Adrian Duran, vice president and head of advisor recruiting at Integrated Partners.

One of the biggest marks in the win column for breakaway advisors is the expanded access and evolution of technologies that make the independent channel increasingly competitive with the larger, deep-pocketed brokerage firms. “These days, the best technologies are not coming out of the bank channel, they’re coming from tech hubs in Silicon Valley or start-ups throughout the country,” said Ed Swenson, president of RFG Advisory. “These technologies, including some AI-enabled, are finding their way first into the independent RIA channel, not the bank and wirehouse channels,” he said, adding that the trend will accelerate in the coming months. It’s all adding more fuel to the fire for the breakaway advisors movement, which has now transformed the financial advice landscape for many Americans.

We Were on a Break

The trend has grown so large that it may be shrinking the advantage that the brokerage industry has had for decades. Stephen Caruso, associate director in the wealth management practice at Cerulli Associates, has done extensive research on the breakaway trend, and believes the independent space has become much more attractive to advisors in just the past few years. “Unlike a decade ago, you’re not giving up much by going independent because the RIA space has grown so much,” he said. 

One of the traditional advantages that the largest wirehouses and brokerage firms had over smaller independent advisory shops was access to high-net-worth clients and sophisticated lending products. That’s simply no longer the case as independent shops have invested in building out their high-net-worth services, including trust and concierge offerings, Caruso said. “RIAs are also figuring out how to access certain lending services by working through partnerships.”

Another distinction that Caruso said favors the RIA channel and independent-minded financial advisors is open access to a wide variety of products and services that aren’t limited to inhouse funds and platforms. “The RIA space right now is much more scalable because much of it is being built for the first time,” he said. “There is so much more flexibility to run fast and fail fast.”

It’s Not You, It’s My Payout

Swenson of RFG Advisory echoed this sentiment by explaining that independent advisors can enjoy unrestricted pursuit of the best products, services and technology. “The holy grail of an advisory business is organic growth, and the independent space allows advisors to pursue these opportunities and use these tools to grow their businesses,” he said. “The data overwhelmingly supports this conclusion; advisors in the independent space grow the fastest in the industry for those reasons.”

While the wirehouses, with roughly $12 trillion in total assets under advisement, still have a size advantage over the $10.6 trillion RIA channel, Cerulli’s research shows that RIAs are growing faster than the traditional channel:

• Over the past five years, the wirehouses have experienced a compound annual growth rate of 8.5%, which compares with 11% for RIAs over the same period.
• Cerulli forecasts an additional $784 billion moving to the RIA space over the next five to 10 years, which includes an additional 37,000 RIAs over that period.

Craig Hundt, president of Prairie Wealth Advisors, describes the RIA migration as an “arms race” with firms competing for advisors. “There’s a lot of competition for top advisors, and the pool of experienced advisors to choose from is shrinking,” he said. “Firms need to be larger and better resourced so they have the capacity to offer more competitive compensation and equity is increasingly part of the conversation.” 

Hundt also sees the ways that the RIA space is making the transition easier and more appealing. Platforms that allow advisors to plug into an existing infrastructure are becoming more attractive, because advisors can access a full tech stack and operational support without having to build everything from scratch, he said. “Most established RIAs should already have the technology and capabilities in place, but for advisors considering a move, it is much harder today to break away and build all of that on their own.”

It’s Time for a Clean Breakaway. The growing sophistication of clients is at least part of the growth and success of the independent channel, said Jason Gordo, president and cofounder of Modern Wealth Management. That’s because RIAs are perceived as offering a cleaner, transparent and more client‑friendly way to operate. “Large RIAs are built for advice, not transactions,” he said. “Advisors gain access to integrated tax and estate planning, no ticket or trading fees, and true open‑architecture investing without being limited by an approved product list.”

From Gordo’s perspective, clients generally see the transition to independence as an upgrade.

“They gain more services, more choice and better transparency, which strengthens trust and deepens the advisory relationship,” he added. “The client is doing business with the advisor, not the brokerage chassis.”

Breaking Up Is Hard to Do. Kris Etter, founder of Beacon Financial Planners, said he is grateful for the experience he gained while working at large and smaller brokerage industry firms, but sees only upside in the RIA space. “I founded Beacon in 2019 after 17 years in the broker-dealer world, and I wish I had broken away 10 years earlier,” he said. “As an independent RIA, I can do anything other advisors can do, but they cannot do what I can.”

In terms of clients coming along for the ride when advisors make the move to independence, Caruso of Cerulli said the upside is two-pronged. When an advisor leaves an independent broker-dealer to join or launch an RIA, Cerulli said roughly 82% of the assets make the transition within 12 months. When the advisor is breaking away from a wirehouse, about 72% of assets convert within 12 months. Both are acceptable conversion levels, especially when considering that many advisors use the transition to weed out some clients.

Sometimes when advisors leave, they intentionally will not bring over some of their “D-list clients,” which Caruso said can account for about 5% of assets.” “Think of it as planned attrition.”