Big brokerage firms have long encouraged advisors to form teams. For advisors, there is strength in numbers when it comes to serving clients and building their businesses. For the firms they work for, teams represent a business advantage and a hidden retention strategy. It’s thought to be harder to recruit away a group of advisors than it is an individual, as the various personalities, goals and risk tolerances of a team can be more challenging to solve for.
Yet, big teams are leaving the wirehouse world. Year to date, there have been 24 $1 billion-plus teams that have reportedly left the wirehouses to build their own firms or join hybrid independent firms.
What’s Driving the Movement
One of the unintended consequences of building strong teams is that as they grow, they have the tendency to set themselves up as their own “sovereign entities” within the broader organization. As a result, they tend to rely less on the firm’s resources and infrastructure, and more upon their own systems they develop over time to better align with their clients’ needs.
Essentially, these teams become “self-sufficient machines”—more insulated from the firm and better prepared to leave and build their own independent businesses.
Consider 6 Meridian, a $2.5 billion registered investment advisor in Wichita, Kan., which broke away from Morgan Stanley in 2016. At the wirehouse, they reached a point where they were operating autonomously and self-investing in their own practice. As CEO and founding partner Margaret Dechant shared in a recent podcast interview, “We built out our own investment platform. We identified our target market and created a marketing and branding strategy around those target markets. We hosted our own events and hired our own staff. We invested in the business just like we owned it.”
When a Business Becomes a “Business”
As more and more of these mega-teams look at their businesses as “businesses,” profitability comes under greater scrutiny. That’s when partners often realize that you’re “giving the firm in the vicinity of 60% of every dollar that clients pay you for nothing more than a place to sit and to use the firm’s technology,” Dechant said.
And it’s then that many of these teams recognize that they have a better opportunity of realizing their full potential as an independent firm, outside of the confines of a big brokerage house.
While the pricey tariff advisors are forced to pay their firm is one of many motivations for breaking away, it’s the sheer ability to do more without limitations that’s really driving the movement.
The team at 6 Meridian was looking to serve its clients with the freedom to run and own the financial relationships. “We were not able to achieve that at Morgan Stanley to the level we are able to today as business owners,” Dechant shared.
Like Dechant and her partners, these advisors find that they may be looking to offer options or strategies to their clients that their firm doesn’t support. For example, 6 Meridian wanted to expand on the services and solutions it could offer, such as true family office services, tax planning and preparation, bill pay, access to private investments and bespoke alternatives—all things that high-net-worth and ultra-high-net-worth clients typically expect from their advisors.
While solo advisors may find it overwhelming to explore their options or even consider setting up their own independent practices, big teams have the advantage of being able to divide and conquer the due diligence process. Further, individual members have experience in navigating operations, vetting technology or building infrastructure.
It’s the self-sufficient nature of these teams, along with their willingness and ability to invest in their own businesses, that has made them the powerhouses that they are. With an expanded landscape and many options to assist them in making the leap, teams have both an advantage and an opportunity to succeed—indeed, a result the big firms were not counting on.
Mindy Diamond is president and CEO of Diamond Consultants in Morristown, N.J., a nationally recognized boutique search and consulting firm in the financial services industry.