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RIA Alternatives

Some big wirehouse brokers are fed up with Wall Street and want full independence. For those who aren’t prepared to go the RIA route on their own, there are plenty of options.

Many long-tenured top producers are complaining lately that the wirehouse firms are “broken,” and they want an out. They’re frustrated with senior management, they say, who, in many cases, have made lousy decisions that have forced them to apologize to clients. They are living in a compliance culture that places onerous restrictions on them and creates business inefficiencies. Plus, they are collecting just 50 cents on the dollar, they complain, with much of the remainder going to pay for services they don’t use. Oh, and add to that the fact that many of them have lost a huge chunk of savings due to plummeting company stock.

Of course, not every big producer feels this way. But many who do are struggling over what kinds of career moves to make. They expect more of the same from the wirehouse down the street, and because they are financially secure, they don’t necessarily need the big checks that would come with such a switch. (Of course, some do. See story on page 26.) The independent b/d channel is one option, but it doesn’t give them complete and total independence. And yet, many are fearful of going the RIA route because they don’t know the first thing about running a business.

But that fear may be diminishing, particularly as firms have sprouted up in recent years that make it their business to help wirehouse advisors with the business side of setting up an RIA. Those industry consolidators— firms like National Financial Partners, United Capital Advisors and Focus Financial Partners—are making strategic and financial investments in fiduciary wealth management practices. They tend to buy a portion of an advisor’s business, but allow him to essentially operate independently. Of course, these firms have long invested in small, independent RIA practices. But the consolidators are increasingly using their model to partner with so-called “breakaway brokers” to capitalize on their discontent and help them make the leap.

“It is a way to go independent with a partner sharing some of the risk, while maintaining control of the firm,” says Rudy Adolf, president and founder of Focus Financial Partners, which is headquartered in New York and San Francisco. Focus is now the largest independent firm in the country, with $28 billion in assets, 15 partner firms and 700 employees. “It is a solution where you can stop apologizing for the firm you work for, where we help you to become an entrepreneur, do the right thing for your clients and get significantly better economics by building equity in your practice,” he says.

In essence, under this model, the advisor sells a portion of his cash flow to the consolidator— without foregoing independence—and becomes part of a partnership network that offers economy of scale, and can reduce fees and costs for its partner firms. It allows the broker to self-brand, and take the reins into his own hands, controlling his firm’s strategy, pricing, operations, administration and finances. Meanwhile, he still gets help with marketing and office management. Plus, the model offers a built-in and funded succession plan for partners, not insignificant for a broker who is coming from a wirehouse.

Still, this type of deal is not for everyone, say executives at the firms and advisors who’ve done it. It is for perhaps 1 percent to 2 percent of the total advisor population, they estimate— those who are entrepreneurial at heart, have deep relationships with their clients and who aren’t especially wowed by the prospect of a big upfront check. Adolf suggests that advisors should be “long-term greedy,” and focus their attention not on the take-home pay they will collect in the first year, but on the new wealth they will accumulate over the next six.

Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting.

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