Imagine a horizontal line on an otherwise blank sheet of paper: This line represents the wealth management industry landscape. On the left side, we have the traditional captive or employee models like the private banks and wirehouses. In the middle, we have regional and boutique firms that offer similar capabilities to the wirehouses but with a more business-friendly culture. And on the right, we have the independent models, including the independent broker/dealers and RIAs.
For a long time, it has felt like the pendulum representing advisor movement on this spectrum has been steadily swinging from the left (the captive space) to the center and right (toward models offering more autonomy).
But have recent market events caused the pendulum to shift back to the left?
Since the failures of Silicon Valley Bank and Signature Bank in mid-March, the entire industry has been on the edge of its proverbial seat, wondering if there are more dominoes set to fall in the coming weeks.
While the turmoil was ostensibly related to the traditional banking system, it’s clear that advisors (and their clients) have taken notice.
Viewing the Landscape ‘Post-Crisis’
Logically, one would presume that due to recent events advisors will flock to the wirehouses. Many advisors (and their clients) prefer the safety, stability, familiarity and brands of the wirehouse world. But plenty of advisors felt that way even before recent events.
Meanwhile, regional, boutique and independent firms that safely custody assets with a third party are still going to enjoy recruiting success. After all, the frustrations and limitations that many advisors in the wirehouse world describe do not magically disappear as a result of this noise.
The narrative is evolving rapidly, but as things stand today, there are four key implications:
- The modern wealth management industry landscape works as intended. Choice is a wonderful thing. It means that an advisor is much more likely to find their version of perfect—and particularly in times of strain and uncertainty, it means more legitimate options for advisors and clients. Uncomfortable with a smaller firm? The wirehouses are compelling options. Refuse to ever work at another bank again? Consider a boutique firm with no balance sheet risk. Worried that your firm may sell to an unpalatable buyer? Explore independence, whereby you own your equity and have maximum agency over your business.
The point is that while black swan events like this crisis may cause the pendulum to swing in directions it otherwise might not have, the shift is a natural and expected response.
- We won’t know for some time if these events have impacted the velocity and direction of advisor movement. And we need some benefit of time and hindsight to properly evaluate the repercussions. We can, however, use past events to make some predictions about the future. The most notable recent banking crisis was the 2007–2009 global financial crisis. Even amid one of the worst recessions in U.S. history, advisors continued to move with record velocity. When an advisor feels frustrated or limited, or motivated by a better mousetrap, no amount of market turmoil will change that.
Therefore, while advisor recruiting may slow down in the very near term as some advisors are sure to take a wait-and-see approach, in the medium and long term, this recent crisis will likely do nothing to deter advisor movement.
- Clients are more concerned than ever about the safety and security of their assets. That, in turn, means advisors need to be mindful of how their firm safeguards client money and how clients perceive that risk. Many firms custody assets with one of the major third-party firms like Schwab or Fidelity, but that doesn’t automatically translate into client confidence. “Safety and security” mean different things to different people. For some, it will mean establishing an independent firm with assets custodied at a third-party custodian or independent broker/dealer. For others, it will mean a big brand name and a rock-solid balance sheet.
Ultimately, there is no “right” answer, and we expect advisor movement to reflect this dichotomy of choice.
- In the near term, the wirehouses will likely be the big winners. That is NOT to suggest that the myriad independent options are no longer viable. Indeed, those options continue to be attractive for advisors who value freedom, flexibility and control and who can get their clients comfortable with the fact that the third-party safe asset custody model works. But it likely does mean that for now, smaller firms with less established brands (especially those with ties to a traditional bank) will probably lose some market share. Indeed, many of the wirehouses have already reported significant asset inflows due to the recent banking crisis.
Times like these serve as a stress test of sorts, demonstrating that the natural order of the landscape is evolving as intended. The pendulum is supposed to shift naturally as advisors’ needs and wants change. While recent events will likely cause the pendulum to shift faster, and perhaps in different directions than it otherwise might have, only time will tell who the real winners and losers are.
The good news is that in an expanded landscape, advisors are the benefactors of a world of choice. And more choice means greater innovation, investment and service—regardless of the stress tests the system may endure.