More Advisors Are Going Independent, With No Regrets

DIY isn’t only for investors—financial advisors are increasingly going the independent route too, transforming an industry long dominated by large brokerage firms and wirehouses. And it turns out, advisors are happy they made the change. More than 90% of respondents to a survey by Charles Schwab’s Schwab Advisor Services report they have no regrets about their decision to go it alone.

“Independent advisors are the growth story of the advice industry,” said Jonathan Beatty, senior vice president, head of sales and relationship management at Schwab Advisor Services. “We will continue to see momentum accelerate as more advisors choose to move to the independent model, confident in the knowledge that it is a better way to serve clients while also offering the opportunity to build and grow something of their own. ”

Key Takeaways

  • Financial advisors have more and more options to stake it out on their own as an independent as a registered investment advisor (RIA) instead of being an employee of a firm.
  • Being an RIA gives you independence and flexibility, and you don't have to share your commissions or pay for desk space at a brokerage.
  • What you'll lose is the administrative and sales & market support, office space, training, and the financial, regulatory, and legal backing of larger companies.
  • Independent RIAs, however, tend to report being happier and can make higher incomes.

Growth in Independent Advisory Firms

Rewind several years and most financial advisors were tied to a larger firm, be it a big Wall Street bank or a regional brokerage. But in the last few years, more advisors have been making the leap to become independent advisors with help from the likes of Charles Schwab, which offers trading, clearing and other services to support that business model, and Dynasty Financial Partners, which provides wealth management and technology platforms for select independent financial advisory firms.

With the RIA market expected to see strong growth in the years to come, Schwab and some of its peers including Fidelity Investments and TD Ameritrade have seen a pickup in business more recently thanks to a wave of brokers jumping ship from the likes of Merrill Lynch and Morgan Stanley, aiming to gain more control over their own lines of business. Changes to the fiduciary rule have also prompted an increase in the RIA business model. Cerulli Associates, for one example, predicts RIAs could control more assets than the major brokerages combined by 2020.

RIAs Are Happier, Make More Money

In its Independent Advisor Sophomore Study, released in March 2018, Schwab Advisor Services polled independent financial advisors and found that of the ones who made the leap, the majority—more than 90%—said they have no regrets and would make the same decision all over again. What’s more, those same survey respondents said they are happier now that they are independent. The survey found that RIAs have benefited not only from the freedoms independence brings but also from a revenue perspective, with seven in ten saying they have increased revenue since going independent.

While 94% of the poll takers said becoming an RIA was driven by a desire to do what's right for their clients, 73% signaled it was to build better, longer term relationship with customers. That 'do right by the clients' philosophy appears to be paying off, at least with those polled by Schwab. The survey found that close to half of advisors, or 48%, think working with a fiduciary is the most important benefit for clients while advisors said they have kept an average 87% of their clients after going independent.

Should RIAs Still Start Their Careers at Brokerages?

Making the decision to trade the comfort and protection of working for a large firm to become your own business owner can be intimidating, but once financial advisors decided to make the move they didn’t rest on their laurels. Schwab found that two-thirds of advisors said it took under three years to make the decision to move to an RIA model and when they did it, 90% of advisors transitioned within a year. Not surprisingly, most of the advisors in the survey had started out at a full-service bank or brokerage firm or were employed at national or regional broker-dealer before transitioning to the independent model.

Of those that started out at a bank or brokerage, 33% said they chose that path to get the necessary experience. And while this career path is still very common among new advisors just coming into the wealth management industry, Schwab Advisor Services and Dynasty Financial Partners see an alternative for young advisors. Shirl Penney, Dynasty's President and CEO, describes going independent as akin to learning a foreign language, and points out that advisors increasingly want to be independent, but not alone.

The Bottom Line

Going independent has its pros and its cons. It will be up to the growing RIA-support services in the industry to show new wealth managers that they can find independent success within a supportive community of fellow entrepreneurs.