For many wirehouse advisors the lure of moving to the independent channel can be strong. These would-be “breakaway brokers” are largely free of the desire to be paid the biggest sum of money as an incentive, but are hungry for greater control over their business, the opportunity to create a brand and gain equity with less conflict and bureaucracy, and the ability to provide more customized services and products to their clients. So many top advisors and teams have chosen to go independent that, according to Cerulli Associates, RIAs and dually registered channels are the fastest growing with assets under management increasing by 13% and 19% respectively.
In just the past six years, three independent models were born - and now dominate - the breakaway marketplace for advisors looking to grow: Focus Financial Partners (2006), HighTower Advisors (2008), and Dynasty Financial Partners (2010). Each offers different transition paths and paths of compensation/support. All maintain they have one core vision: to help advisors grow faster than they would on their own.
Offerings can include upfront money, equity, succession options and more; it is a stark contrast to the independent space of old which was largely just a platform with no practice management support beyond it.
Here are the three models in a nutshell:
· Focus Financial Partners: The largest investor in the independent advisory space with 24 partner firms who collectively manage more than $60 billion in client assets. Focus offers the best combination of economics and support to an already independent firm or breakaway. The advisor sells a piece of his cash flow to Focus without giving up control, becomes a partner, and has a dedicated Focus team helping with transition and growth. In return, advisors receive tax benefits and high earn outs. Best for advisors who want to become business owners, monetize their businesses in the short term, and partner with a value add investor.
Example: Michael Nathason of The Colony Group saw with Focus the opportunity to collaborate with firms that he considered leaders in the industry and to raise their game for clients. Additionally, Colony wanted to access the capital needed to do some high profile acquisitions. They acquired the Boston-based RIA Mintz Levin Financial Advisors, recognized as one of the top wealth advisors in the country.
· HighTower Advisors: A dually registered, multi-custodial partnership that is 25 percent advisor owned, HighTower offers a mix of cash upfront and equity. Advisors are W2 employees and payout is dependent on the profitability of each individual business. The firm is backed by private equity and likely to have a liquidity event in the relative near term. Best for breakaways who want to be independent with a voice in shaping the future of the firm, but still be able to monetize the business and walk into a turnkey environment.
Example: Mark Kravietz’s MK Wealth Management is a top-legacy wirehouse team in Long Island who joined HighTower in March. Kravietz was an independent-minded advisor who wanted to align with a firm that served its clients as true fiduciaries. Walking away from a high amount of unvested deferred comp but with a desire to build wealth, HighTower’s offer of cash and equity was very appealing.
· Dynasty Financial Partners: An integrated platform/service provider with 17 advisory firms and more than $16.5 billion of assets under management. Their core service model allows advisors to unplug from employee status and set up as an independent with products aimed at the needs of high net worth clients – all without taking an equity stake. Best for breakaways seeking turnkey solutions to achieve independence who want to retain 100% ownership of their businesses.
Example: Jim Maher’s Archford Capital Strategies specializes in business transitions. Many of Jim’s clients are business owners with needs from transition services to liquidity strategies. Jim knew that being independent with more flexibility and freedom to focus on his clients’ specific needs and obligations would lead to even better client service. Still in growth mode, Jim was not willing to sell a piece of his business at this point. Having access to Dynasty’s resources without taking on a capital partner was most appealing to him.
The catalyst for so many wirehouse advisors to choose independence is to open a world of possibility for them and their clients. With the increasing demand on the part of high-net-worth clients for sophisticated loans, capital markets transactions and investment banking services, advisors need to find more creative and competitive solutions. Ironically, most of these advisors work for bank-owned brokerages, but the options are limited to what their firms offer. By becoming independent, advisors can shop the market for the best terms and structure on all products and services, as well as build their own brand and equity. While all advisors talk about independence offering more freedom, it’s clear that it offers far more than that. Today, regardless of which brand of independence an advisor chooses, he is better able to accomplish his personal short and long-term financial goals.