The September meltdown in the financial markets, not surprisingly, undermined the confidence of many financial advisors, and their clients, in the Wall Street wirehouse firms. As the value of bad mortgage assets on wirehouse books plummeted, the firms made the headlines daily and scrambled desperately to come up with capital. And then, suddenly, the old independent investment bank/brokerage model ceased to exist, with Merrill Lynch, Goldman Sachs and Morgan Stanley now acquired by, or converted into, commercial banks. The question is, for those wirehouse advisors who have had enough, what are the options for bailing out?
For some, the prospect of going fully independent is overwhelming. But there are firms that allow advisors to operate with an intermediate form of independence: open architecture plus back-end support. Beyond the RIA consolidators, such as Focus Financial or National Financial Partners (see July 2008 Career Moves, “RIA Alternatives”), and the large national broker/dealers with quasi-independent platforms, such as Wachovia or Raymond James, there is another attractive middle ground: high-end, wealth management boutiques like Stanford Group, Alexandra & James, HighTower Advisors or Silvercrest Asset Management Group.
In the past few months, the number of advisors my firm has spoken to who expressed interest in this boutique model has nearly tripled. What these advisors are looking for is independence, open architecture, solid performance reporting, total freedom from proprietary products, self-branding, nimble management and intimate culture.
What They Are All About:
Many of the boutique firms can live up to these demands. They have fully integrated middle and back offices, deliver economies of scale and support, and yet leave almost all of the decision-making and planning in the hands of advisors. Advisors can build equity in their own businesses, as well as the overall firm, while still receiving the benefits of being an employee. They have an added attraction for advisors who live in cities that are outside the major metropolitan areas because many of the boutique firms are either headquartered in smaller cities, or are flexible about opening up offices in such cities.
“Vince,” a big city Southern broker who has been with the same wirehouse for more than 15 years, producing $3.1 million on $360 million in assets and catering to approximately 100 high-net-worth client households, was feeling frustrated with the negative press exposure his firm was receiving, the time it took to get answers to his clients' questions and needs and an inability to report his S&P-beating portfolio performance results. But he didn't want to make a bad situation worse. Vince had to be sure that any firm he considered joining had the financial resources and intellectual capital to satisfy him and his highly affluent client base.
In his search for new firms, Vince was particularly intrigued with the boutique firms in his market. For his clients' purposes, he required consolidated reporting, excellent optimization tools, sophisticated portfolio analytics, top-notch research, a strong on-line presence and true open architecture. He also knew that he needed a firm that offered a great multifamily office approach with excellent estate planning, philanthropic advisory and intergenerational wealth planning capabilities.
Having heard that boutique firms might offer what he was looking for, he started to research the Stanford Group. He liked its multifamily office approach and service culture, and the fact that it has a big presence in the southern United States. He decided to make the move in the first quarter of 2009. If you are ready for a switch, but don't want to swing all the way to full independence, the boutique firms might be worth a look.
SOME OTHER FEATURES OF THE BOUTIQUE MODEL:
All back-office functions are handled by the firm.
Advisors have a “fiduciary relationship” with clients.
Complete open architecture.
The ability to run a firm like a private bank and multifamily office model.
Significant upfront money (comparable with the bonuses offered by wirehouse firms, but negotiated on an individual basis) with tax efficient equity participation and competitive payouts.
An active voice in the strategic direction of the firm.
Dual registration under both the traditional brokerage and RIA models.
founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com