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The Best of Both Worlds as an Independent Financial Advisor

The Best of Both Worlds as an Independent Financial Advisor

| November 14, 2022

Financial advisors pondering the future have myriad items to consider. And the data suggests a sizeable number are in fact examining their options. A JD Power survey found wirehouses could lose 15% of their advisors in the next two years. The survey indicates that strong service, competitive products, and a strong culture are important factors driving advisor satisfaction.

McKinesey finds that the independent channel is the fastest-growing category in the U.S. wealth management market since 2016. In addition to the increased flexibility they would have establishing their own independent practice, many advisors are motivated by entrepreneurship and a sense of ownership with greater responsibility for their professional growth and success.

Independent Advisors in the Clear

Even so, some advisors may hesitate to move from a large wirehouse firm to setting up an independent practice over concerns about the “in-house” support they would be leaving behind. At the top of the list might be: Who is going to handle trades and transactions for clients?

The root of that concern may lie in the definition of ‘wirehouse’ which takes its meaning from before the era of wireless communications, when telegraph wires and telephone lines connected brokers to the main office to get stock quotes and market news for their clients. Investopedia writes that “Today, the internet has made it possible for these institutions to communicate and transmit data wirelessly; however, many large brokerages are still referred to as wirehouses because of the substantial impact wire communication had on their operations.

The reality is that independent financial advisors can have it both ways: The ability to run their own business to maximize their client’s interests with all the resources to which they have grown accustomed working for a large firm. Cutter & Company, a Registered Broker-Dealer and Investment Advisor, has  a strategic clearing relationship with a wirehouse custodian. The relationship provides total confidence that trades get executed promptly and accurately for our independent financial advisors. The details can be found at the Clearing Partners section on our web site. This relationship provides access to the products, research tools and resources necessary to run an independent practice efficiently and develop customized client solutions.

Fundamental Shift

These kinds of resources, in combination with a business model that allows independent advisors greater flexibility in serving their clients than they could provide under the auspices of a large corporate structure, help explain fundamental changes in the industry. Research by Aite-Novarica found in Think Advisor indicates wirehouses will continue losing more market share than any other wealth management segment through 2025, with the projected decline from 25% in 2021 to 24.2% in 2022 and 21.9% in 2025. In the meantime the wirehouses will also “continue to steadily lose advisors to other channels,” according to Aite-Novarica.

Financial Planning suggests its a good idea to follow the money. Between 2020 and 2025, the advisor populations at hybrid RIAs are expected to gain 2.2%, while those of independent RIAs are on track to grow 2.1%. Independent Broker Dealers, meanwhile, are projected to expand by 1%.

The list of compelling arguments to consider establishing an independent firm is lengthy. If you wish to discuss some of them in greater detail, don’t hesitate to contact Cutter & Company directly.