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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