Retained
The lion share of advisors remain at their brand name
firms. The financial press leads us to
believe that most of them have broken away to work as an independent wealth
manager. Is this fake news? This week we will examine why so many advisors
have been retained by their current firms.
Is the independent positioning lacking or are the established firms
smarter than we think?
Inertia
Inertia is a powerful force.
It is easier to stay put that to make a change. Inertia keeps 95% + of employees at their
current job. History has shown that
shocking events can overcome inertia. If
the news is shocking it is by definition impossible to predict. Recruiters and Advisors can address this by
researching a viable Plan B when things are calm. Calm environments can make us
complacent. Use the calm to create a
viable Plan B. Creating a plan is not as
risky as executing the plan. That can
wait until something shocking happens.
Money
After The Financial Crisis Wall Street raised the fence
around their firms and issued seven year retention loans to lock up their best
advisors. The money helped ease the pain
and fears caused by the dramatic decline in the market. The retention “bonus” structure prevented
advisors from leaving the firm long after the pain of the Crisis wore off. Wall Street management showed that they
realized the importance of their advisors’ client relationships and they also
understood the power of inertia (read above).
The other powerful card that Wall Street has is their compensation
structure. Advisors have more products
and services to offer and even though the products have an embedded conflict
they pay the advisor more than the unconflicted structure of an independent
advisory firm. As much as we know that
this structure is not in the client’s best interest. Money talks!
Kool-Aid
Our current firms have done a great
job convincing advisors and their clients that the firm has spent the requisite
time and money to create unique investment ideas that will make money and would
be difficult for the advisor or client to identify on their own. Independent advisors position their firms to
emphasize that taking an unconflicted approach to selecting the best investment
ideas is superior to the limited options at a large firm. Is that enough to entice advisors and their
clients to make a change? To date that
positioning has had some success as independent firm assets have grown from
16.8% of wealth advisory assets to 22.7%.
Does this positioning trump money (read above)?
The IPO of Focus
Financial will answer many of these questions. In the interim let’s drink the water of
independence instead of the Kool-Aid of Wall Street.
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