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The rise of the advisor-entrepreneur

Advisors are taking control of their practices and moving away from wirehouses

By Runik Mehrotra

The rise of technology and global connectedness has uprooted decades-old infrastructure in the wealth management industry. Just 20 years ago, most financial advice was delivered by advisors at large institutions, wirehouses and broker-dealers. But today many financial advisors and planners want to be their own boss.

Assets managed by independent advisors have soared as a result, and so have the tools and people that service this segment. As the movement matures, more advisors will discover that they can now deliver better financial advice, especially in uncertain times.

Old barriers to independence

Until recently, prohibitively high infrastructure and support costs kept many financial advisors from saying goodbye to the wirehouses and broker-dealers. Although advisors disliked the payout matrix at large institutional employers like Merrill Lynch and Morgan Stanley, few alternatives existed.

Jobs at wirehouses provided stability, but more often than not, convenience was the real appeal. Working at a well-established firm came with a panoply of resources, from an in-house compliance team that could recite the Investment Advisors Act of 1940 to an onsite IT department that kept your hardware humming.

New tools, new options

Technology has torn down many of those barriers that stood between financial advisors and their independence. A quick Google search, for example, turns up countless options for compliance consultants who work on retainer or an hourly basis. The same is true for IT consulting and smaller one- or two-person shops that work with consultants as needed.

Setting up an LLC may require some legal assistance, but today it’s easier than ever. Businesses like RIA in a Box make traditionally difficult compliance and SEC tasks easy.No longer do you need a team of experts on staff; you can outsource it to consultants or software.

More ways to run a business

Yesterday’s advisors had a fraction of the resources of today’s financial professionals.The mechanics of the classic financial advisor originated in the pre-digital era.  Advisors picked actively managed mutual funds and third-party equity managers, but the tools and resources at their disposal were limited. Each firm operated this same way, which made the time, effort, and stress of breaking away much more difficult.

Moreover, wirehouses and similar large firms were typically the best sources of inbound client leads. The world was less connected, so finding potential clients without resources and credibility of a brand name was next to impossible. For decades, the incentives for independence were not worth the hassle.

The rise of the modern advisor   

Today, independent financial advisors have access to easy and affordable tools. There are dozens of options available, and newly independent financial advisors may receive a pleasant surprise. Many new tools don’t just match the capabilities of legacy systems; they far exceed them. Legacy systems are rarely updated and generally finicky, but advisors become so inured that institutional inertia precludes change. Suppose the lead generation system at your wirehouse is full of junk data or its client portal is sluggish.  You’ll spend too much time managing systems when you should be managing money. With an independent RIA, everything changes. 

Financial advisors who go independent will find themselves working with cutting-edge technology: artificial intelligence, streamlined interfaces, cloud infrastructure, and more. Cloud-based CRMs make client tracking simple and accelerates the lead time between generation and conversion. Artificial intelligence can automate many rebalancing tasks and allows greater portfolio personalization.With new financial planning tools, complete customization is no longer a nice-to-have: it’s essential. Simply put, independent RIAs can work faster, work smarter, and work better.

The best financial advisors have had enough. They want more time with their clients instead of management-imposed quotas. They want the freedom and flexibility afforded by new technologies. And they want to receive their fair share of the value they create.

Advisors are exiting their old firms in droves. Even the oldest and most traditional wirehouses recognize that change has arrived. Major firms eliminated “penalty box” production barriers to keep their advisors from leaving en masse. Some financial advisors will remain onboard at the giant firms, but the true innovators, the trailblazers of personal finance, are going independent.

Runik Mehrotra is the cofounder and chief investment officer of Vise.

June 8, 2021