Financial advisors work hard to earn the trust of their clients, and as Haig Ariyan formerly of Raymond James, now of ARAX states “advisors own the client relationships, not the firm” despite how many big firms see the issue. In a recent interview with Roger Gershman of The Gershman Group, Ariyan stated that after careful review of the advisor landscape, the mega trend going forward is “freedom” – advisors need to have the freedom to control their practices with continuing REG BI pressure, and thereby their own fate as firms breathe down their necks with heavy handed compliance and operations.
Ariyan stated that advisors “deliver goodwill” to the client that cannot be replicated after years of building relationships. Clients share private details about their lives, their goals, and even their fears which is a hard thing to do. As seasoned advisors know, they become an integral part of a client’s life, advisors learn about intimate details from weddings to funerals, to educational desires, trusts and estates, to values and philanthropic giving. Advisors are often invited to attend functions with their clients socially and those that mark the important occasions of their life – both when times are good and when hard things happen such as deaths in the family. An advisor is a trusted confidant that in some ways goes beyond the scope of a counselor given the importance of money in the equation. Developing this level of relationship is optimal with one advisor, not in transition to multiple advisors at a firm, increasing the worth of the advisor alone in the client’s eyes.
In a separate interview with Gershman, former Deutsche Bank/Alex Brown advisor come Raymond James W2 advisor in the acquisition, Kevin McCluskey outlined his path and reasons for why he left Raymond James W2 model for the 1099 model, and ultimately for complete independence in his own RIA, Castle Island Family Office2. As a seasoned advisor, McCluskey stated that the Raymond James 1099 model still felt like he was controlled by RayJay due to compliance and operations which wasn’t the experience he was hoping for. He yearned for autonomy and the freedom to run his practice as he saw fit, and ultimately this led to going fully independent, a move in reflection that he wished he’d done ten years earlier. In the interview, McCluskey said that fear held him back, as it probably does for many advisors who know in their hearts that the present big wirehouse situation may not be ideal for them and for their clients. The fear, as he said, is that clients are there for the firm, the brand name, cachet, size, or power. The reality is that once client relationships are established, clients are there for the advisor who knows them best, seeing to it that their best interests are served. In short, advisors need to have faith in themselves, not the firm.
McCluskey outlined that the transition to his indie RIA was far easier than expected, and that yes there were expenses to get up and going as you’d imagine with any new enterprise but that his analysis between big firm income versus RIA is a substantial differential. Out of fear, some advisors go for the showy big deals of 400% but that holds the advisor’s captive (hostage), for what amounts to be far less income over time – this is a short-term vision for short-term gains, without the flexibility that seems an imperative in the industry. McCluskey is thrilled about the income potential as a business owner with long-term capital gains and 70% payouts to himself and the team after expenses, not to mention the equity interest solidified if he wanted to sell the practice at some point – this is the ultimate in flexibility. Ariyan stated that his reason for forming Arax was to scratch the itch of becoming an entrepreneur, which many advisors might be curious about amidst long careers at big wirehouses. After all, many advisors serve entrepreneurs and may envy that kind of freedom and autonomy to do in business as they please.
As it stands, when advisors move currently, half opt to go independent, and that figure is forecasted to increase at a steady clip. There are many supported independent platforms for advisors to consider, each offering slightly different options, but largely the same. Transition support is provided, as well as compliance, marketing, technology, real estate, and souped-up investment options and alternatives. In 2018, Charles Schwab & CO, Inc. conducted a study that revealed when advisors leave for independence over 87% are retained in the move, that number now is likely significantly higher into the 90+% range. A recent report by Cerulli noted that younger investors who stand to inherit large sums of money in the greatest wealth transfer in history prefer to work with independent advisors, citing this important takeaway, “This generation is used to being able to obtain answers to any question with just a few taps on their smartphone, so the idea of being on hold for minutes—let alone hours—can be off-putting, particularly when dealing with something as important as their finances.”
In summation, advisors are worth more than ever given all of these trends. Advisors are encouraged to know their worth, and to remember that they truly own the client relationship no matter how the firm views it. Advisors, have faith in you, not the firm.
- https://thegershmangroup.com/haig-ariyan-and-roger-gershman-discuss-the-landscape/
- https://thegershmangroup.com/making-the-most-out-of-independence-with-roger-gershman-kevin-mccluskey/
