The March of the Independent Advisors


With more wirehouse brokers going into the independent space, the leading universal banks are facing increased competition for clients. The US wealth landscape is experiencing a continuing exodus of wirehouse brokers into the independent space. Is the RIA (Registered Investment Advisor) channel starting to threaten the dominance of leading universal banks and, more importantly, key client relationships? Research by Cerulli Associates estimates that the RIA market is expected to reach 28% of total US assets by 2018. Whilst the large wirehouses still dominate the market – Morgan Stanley, JP Morgan, Wells Fargo and Merrill Lynch have close to US$3.5 trillion in US private client assets under management (Barron’s Ranking of America’s Top 40 Wealth Management Firms) – the rise in RIAs will lead to increased competition in the battle for clients.

Why advisors are branching out on their own is open to speculation. For some it will be the ability to manage investments independently, away from company agenda. For others it will be to escape from the increasingly tight regulations and restrictive policies and procedures that are being enforced on the wirehouses. For others it will simply be the allure of being their own boss. Either way this continuing trend can no longer be ignored. A recent study from Spectrem Group’s Client Loyalty among Affluent Investors report shows that only half of American HNW (US$1 million to US$5 million) and UHNW (defined by Spectrem as US$5 million to US$25 million) investors would stay with their firm if their advisor left, while the other half said they would transfer their assets to their advisor’s new firm, because that relationship is more important to them than the firm for which the advisor works.

It seems that for half the wealthy population in the US, if the advisor goes, so does their client book. UBS has reported that their average advisor will manage US$150 million of client assets (UBS Americas). Wirehouses cannot afford to lose books of this size with every departing advisor. Ultimately the major banks have started to identify the emerging pattern of advisor exoduses and are tackling the issue head on. Special retention bonuses to thousands of advisors have been introduced, as well as up-front signing bonuses with some agreements keeping advisors at their firms for up to nine years.

Some however, have been more innovative in their approach to retaining advisors and ultimately, clients. In April 2015, UBS introduced an Aspiring Legacy Financial Advisor (ALFA) program, designed to transition client relationships by pairing newly recruited advisors with financial advisors who have been with UBS for upwards of five years. This way, when the experienced advisor decides to leave the firm, UBS has theoretically built other touchpoints with the client, thus reducing client and asset churn. Another provision within the ALFA programme is that advisors signing a contract commit to leaving the financial services industry, not just retiring from the firm. In return, the advisor receives up to 230% of their trailing 12 months’ revenue over five years. Morgan Stanley has enhanced one of its programmes called the “Former Advisor Program.” It provides a large up-front payment to qualifying exiting financial advisors even before their books are transitioned to other Morgan Stanley advisors. The hope being to make clients and their assets as ‘sticky’ as possible.

However, these strategies can only work in the short-term, and with the number of departing advisors set to increase, these approaches will become increasingly expensive. Firms need to bake in to their client relationships, and achieve as strong a firm-client connection as an advisor-client connection, in order to minimise the business risk associated with losing significant client books. Otherwise, the competition from independent players will only increase.


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