For different reasons, “yes” is the likely answer for both types of investment professionals. 

We have been building to this tipping point for some time. Advisor pay is under pressure, mergers and cost-cutting are upending the stability of many institutions, and independent advisors are getting significant traction in the marketplace, particularly among high net worth clients. At the same time, the industry has significantly reduced the cost and complexity of breaking away.

In fact, the independent advisor movement has the potential to be a seismic industry event – much like the shift from private banking to wirehouses over 30 years ago. Today, there are more than 14,000 wirehouse advisors who manage between $100 million and $300 million, and 8,000 advisors who manage more than $300 million. The average advisor at Goldman Sachs manages $660 million. More than 6,000 private bankers control accounts totaling an average of $190 million each.  

It is this high-end group of advisors and bankers who are most likely to leave because they are most affected by broad changes in the industry.  

Show Me The Money
Wirehouse advisors are departing because they stand to make significantly less at their current employer than they have in the past.  

Payouts are coming down all across the industry as wirehouse firms come under profitability pressure.  Equally as important, many of the higher margin products that generated significant compensation are coming under closer client and regulatory scrutiny. On top of that, retention packages and recruiting loans are no longer as big an impediment to leaving because they were set when advisors’ production was lower and company stock prices were much higher. Those golden handcuffs are now easier to unlock.

In addition to shrinking compensation, going independent is also gaining new credibility with clients – and among wealth advisors. A growing number of clients, particularly the most attractive high-end clients, are beginning to understand the downside of Wall Street’s conflicted model and fee structure.

For private bankers, the impetus is that their once stable institutions have been thrown into organizational chaos. Mergers and cost-reduction campaigns have made their work environment more difficult, and job satisfaction has been steadily sinking. 

Interestingly, the departure of private bankers may have an even greater impact on the industry than wirehouse advisors. Private bankers control more than twice the average assets as wirehouse brokers.  Moreover, since private bankers make significantly less than their wirehouse counterparts, they have a powerful financial incentive to go independent.

Better For Clients, Better For Advisors

Two other compelling factors are at work. First, there’s an increasing recognition that the independent model is better for clients, and thus in the long run, better for advisors. As clients have learned about the practices of Wall Street and big banks during the past two years, they have become fed up with hidden fees, a lack of transparency and an instinct to put an institution’s interest ahead of a client’s.

Second, it’s now more profitable and less risky for advisors to go set up their own shop. Independent advisors earn a higher payout, own 100 per cent of their book and can begin operating without missing a day of service to clients. The industry has also succeeded in greatly simplifying the task of running the business by providing integrated product and business support. In essence, independent advisors now have the capabilities to provide better investment solutions and service to clients than their current firm. And, as independents, they never have to worry about who really owns the client relationship.

For the wealth management industry, the changes afoot signal a fundamental restructuring of the business.   For wealth management professionals, it’s likely to be the opportunity of a lifetime. For clients, it is a day that can’t come soon enough.

Jeff Spears is CEO of Sanctuary Wealth Services, a provider of wealth management solutions and services to independent advisors.