Numerous times in the past, banks such as Credit Suisse, Barclay’s, Deutsche Bank, Bear Stearns, Lehman Brothers, and now First Republic, have gotten themselves in trouble leaving advisor’s practices in a vulnerable position.The case historically has been one of a symbiotic relationship between the investment and private banking divisions which benefitted private clients, advisors, and the bank itself.
Now with First Republic, the value proposition is a shadow of itself for clients and advisors. History repeats itself, banks and brokerage houses need advisors more than advisors need them. The mass of advisors at banks and brokerage firms dislike the idea of returning to another big bank or even boutique platform and are deciding to take matters into their own hands by creating their own RIA’s.
First Republic was one of the fastest growing and most successful stories on Wall Street with an incredible culture; it is a shame it has come to this. At First Republic, the relationship between private banking and advisors was mutually beneficial as the bank gained massive deposits, offered discounted lending solutions, and in turn advisor practices fed the bank, and the bank fed leads to advisors to make the entire proposition sticky and highly valuable. No longer.
For First Republic advisors, the proposition to return to a big wire house that they potentially left in recent years isn’t desirable – to UBS, Morgan Stanley, RBC, Wells Fargo, Rockefeller, and even the risks associated with a smaller firm. Roger Gershman, who advises advisors on moves (www.thegershmangroup.com) says, “the idea of moving to another bank is something advisors can hardly fathom, they are looking for something different.” These firms are still linked to practices that put advisors and clients at risk. If an advisor considering a move, do you want to put your business at potential risk again and are you ok with a client acting on news they hear about the firm which could cause a run or need to change again? There is a viable home run solution to this is starting an independent RIA.
The upside is that for the most part, advisor’s businesses are fairly immune to the ups and downs of banks. Banks and brokerage firms need advisors more than advisors need either of them, and the bank’s value proposition continues to erode causing advisors to flee. Custodians are a commodity whether or not it is Schwab, Fidelity, or Pershing and all the products and services, trading, and reporting are ubiquitous.
Gershman says, “there are three major 1099 large banking platforms where you can establish your own RIA – Raymond James, Ameriprise, and Wells Fargo Finet. The biggest and most dominant platform is Wells Fargo’s First Clearing custodian.” First Clearing services 50 broker dealers and hundreds of RIA’s, one of those being Wells Fargo who is hungry to help advisors establish their own independent practice, allowing them access to all platform benefits without reference to Wells Fargo the company.
Advisors, imagine that you could have all the benefits of being at a multinational big bank platform with full access to all the products and services without being an employee – instead as an independent contractor. Advisors own 100% equity of their business while accessing all the resources of bank platforms, technology, support, with net operating income averaging 70% 1099 income. Just the same as big banks, independent platforms pay a significant amount to transition. There is also significant private equity interest to sell any amount of your new RIA at LTCG.
Advisors have list access to a multinational wire house platform, investment banking and capital markets research, integrated private banking resources, custom credit, and family office and trust services. Advisors also have state of the art technology services that mirror being in house at a big firm: wealth management platform trading, client interface, advisor workstation, operations, legal and compliance, reporting technology, and financial planning software.
