Over the past few years, the financial services industry has seen an exodus of registered representatives from large wirehouse firms and other financial institutions to smaller, independent financial services firms. According to financialadvisoriq.com, wirehouse rosters shrunk by 1 percent while non-wirehouses saw their advisor numbers grow by over 4 percent.
There are several possible causes for this shift and many of them reinforce the assertion that the role of the financial advisor is shifting. Clients today seek an advisor they can trust and count on for a comprehensive list of services. The freedom to manage the ways in which their clients’ needs are met means independent financial advisors have a leg up on other representatives.
Payouts
Much of the migration away from wirehouses and other large institutions can be attributed to compensation changes, mainly due to a trend in large firms prioritizing higher-producers and wealthier clients. The economic reality of national wirehouse firms means there are higher expenses to conducting business. This leads them to pressure their representatives to produce more which often alienates mid-level advisors. Because of this, smaller independent firms are increasingly able to offer attractive recruiting deals and payouts to the advisors feeling pushed out.
For example, one reason lower-producing advisors are leaving wirehouses is to avoid the “penalty box,” a policy in which advisors are penalized for low production levels. While larger independent firms may have similar policies, it’s less likely that independent financial advisors will face such pressure to grow their production.
Respect and support
Independent financial advisors enjoy more respect and autonomy. Also, they are often provided with support resources that make running their own business easier and more affordable. As wirehouses, banks and other large financial institutions wield more control over the relationships advisors have with clients, independent advisors have the freedom to conduct their business in a variety of ways instead of following a prescribed formula.
Flexibility
For many representatives of large wirehouses, the products they’re able to recommend and sell to their clients may be influenced by the financial pressures of the institution. This could be because the institutions have underwritten a stock or have an interest in a proprietary product. On the other hand, independent advisors generally have a greater level of control over what they can offer, which means they can tailor a portfolio to more closely fit a client’s needs instead of the firm’s needs.
Ultimately, while representatives of national wirehouses may find themselves struggling to negotiate the loyalty they have toward their firms’ products and the loyalty they have toward their clients, independent advisors may have a greater selection of products to recommend to their clients and are better able to act as “client advocates” instead of “product advocates.”
Also, independent financial advisors are more likely to be fee-based, avoiding conflicts of interest that arise from commission-based compensation. Because of this, it is more likely that the interests of the advisor and the client are in alignment. The ability to advise clients without a conflicting interest is a significant reason many advisors leave wirehouses for independent firms.
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https://www.thinkadvisor.com/2014/07/30/3-benefits-of-being-an-independent-advisor/
https://www.wealthmanagement.com/careers/what-makes-financial-advisor-true-fiduciary
https://learninghub.findyourindependentadvisor.com/5-key-benefits-of-independent-financial-advisors/
