As we explored in part 1 of this two-part series, despite the pandemic, the wealth management industry had some positive notes in 2020:
- Advisor movement has been strong, and, overall, advisors are reporting their best years ever.
- The events of the year have helped many advisors see their business lives in a new light, and they themselves are evolving positively for the new year.
- And just as quickly as advisors rose to the challenge, so did the firms—particularly by way of expanding opportunities for advisors considering change.
That said, there’s a certain groundwork that’s been laid for 10 trends to emerge in 2021. Here’s what we expect:
- There will be lots more movement.
Whether it’s because advisors will emerge from a post–COVID-19 world with a new perspective, or because their current firms frustrate them and push them to the brink, movement will be even more robust in 2021 than it was in 2020.
- Independence will remain a very popular option, particularly among top advisors.
As advisors demand more freedom and control, they will continue to vote with their feet and break away from traditional brokerages. Firms like Sanctuary Wealth, Dynasty Financial Partners and LPL Financial filled the gap that once prevented many entrepreneurial-minded advisors from making the leap to independence. These models allow advisors to grow their businesses scaffolded by a turnkey infrastructure, top-tier technology, M&A support and access to transition capital. “Supported independence” is maturing rapidly and still has plenty of room to grow—particularly as more and more advisors look for faster pathways to independence.
- W-2 firms will unequivocally continue to pick up market share.
Firms like Rockefeller Capital Management, First Republic Wealth Management, J.P. Morgan, RBC and Stifel will continue to crush it. Yet it’s the big brokerage firms that are coming back with a vengeance. Morgan Stanley, UBS and Wells Fargo are kicking butt on many levels already and are particularly attractive to advisors who are looking for a change but want to remain in an employee model they are familiar with. And interestingly, Cerulli recently reported that wirehouse advisors are by far the most productive advisors, averaging $175 million in assets per advisor. Why is that? They credit the firms’ drive in focusing on more affluent clients, plus large investments in technology to improve operational performance. Ultimately, big firms are leveraging the advantage of scale—and it seems to be working.
- Generally speaking, Merrill Lynch advisors are the most unhappy out of all wirehouse advisors, and they will continue to change jerseys at a fast pace.
In fact, Merrill has seen more attrition in 2019 and 2020 than Morgan and UBS combined. The push to sell bank products, circumvention of advisors by bankers, increased bureaucracy, a heavy-handed compliance culture, prohibitions on meeting clients face to face or returning to their offices due to strict COVID protocols—each exacerbates a discontent that Merrill advisors had already been feeling. Plus, the question of whether Merrill will remain in the Protocol for Broker Recruiting still looms in the background—with many advisors opting to move sooner rather than later to take advantage of a less risky transition process. Until Merrill shows signs that it’s better supporting its advisor force, this attrition is likely to continue.
- Recruiting deals will continue to be at high-water marks.
Today, transition packages being offered to incent top advisor movement are at near high-water marks. We emphasize “top” because deals for multi-million-dollar teams in growth mode are in the 300% to 350%-plus range, depending upon the firm. But most firms are only selectively interested in less productive advisors.
- Many advisors have negative feelings about working for a bank, but they’re embracing exceptions.
One of the most common refrains from those at bank-owned firms is, “I never want to work for a bank again.” Ultimately, the entrepreneurial thinking of wealth management and the conservative mindset of bankers just don’t mesh. And yet despite this disconnect, many advisors are running toward bank-owned firms like First Republic, viewing them as “different” from other banks. Why? They offer the best of all worlds: The strength of a well-capitalized firm with a great reputation, plus a strong referral mechanism and robust lending capabilities, layered upon an entrepreneurial culture. Plus, the cherry on top is the industry-leading transition package they’re offering. It’s a combination that has attracted many top advisors and teams and is expected only to grow stronger in the coming year.
- An increase in the popularity of multi-channel firms.
Raymond James, Wells Fargo and Ameriprise had the market cornered on this construct—one where an advisor could join as a W-2 employee and easily migrate to independence. But today, firms like LPL, Commonwealth and RBC have joined the ranks, and we anticipate more to follow suit. In addition, the rumor this year that Goldman Sachs will be getting into the registered investment advisor custody world is a real shot across the bow. With Goldman playing in the space, we have to wonder whether other big firms will be doing so in the future.
- Younger advisors are migrating to independence much earlier than their predecessors.
The “new generation” of advisors grew up in a world where the freedom to communicate via social media, self-brand and differentiate themselves is an expectation. So they’re feeling handcuffed by the bureaucracy and heavy-handed compliance of brokerage firms and are looking for the freedom to serve their clients as they see fit while building equity for themselves. And with a longer runway to retirement, they will have a real opportunity to create enormous enterprise value and participate in an active M&A marketplace.
- Next-gen advisors will be more proactive in pushing their senior partners to consider options beyond their firm’s retire-in-place sunset programs.
As firms are working hard to retain their advisor force, the voice of the next gen will be more impactful than ever before. These younger advisors are more concerned about being locked up for the next five to seven years with programs like Merrill’s CTP, UBS’s ALFA and Morgan Stanley’s FFAP and the negative impact that lack of optionality will have on their overall career development. They’ll strive to become more educated consumers—to get a clear understanding of what they’re gaining and what they’re giving up, and how programs like these could affect their clients and the business overall. We anticipate this will be one of the strongest trends we’ll see in the coming year, as more next-gen advisors push their retirement-age partners to explore options outside their firms.
- Work from home will continue to reshape the wealth management space as we know it. Even as of this writing, many advisors are still working from home. And while it was awkward for everyone at first, the majority of folks have shared that they didn’t miss a beat. They were more productive and able to be in better contact with their clients. And they proved to be adaptable, recognizing that change wasn’t necessarily a bad thing. They learned that even while their firms may have been good partners, working more “independently” was a positive experience. Recognizing how self-sufficient they are, this experience will likely drive more toward independence.
Ultimately, regardless of where advisors choose to practice, they will continue to prize control more than anything and to demand much more from their firms. And they’ve proved that they have the tenacity, drive and courage to change where they practice if or when the status quo no longer meets their needs.
2021 will enforce the feeling of independence for each and every advisor—even those at the big brokerages.
Because at the end of the day, advisors have recognized their destiny is in their own hands. But it’s the next gen that will likely be the real change-makers in the coming year.
As we bid good riddance to 2020, there’s much to be grateful for—and plenty to look forward to.
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.