Is there a ‘Great Awaking’ taking place among financial advisors? Not all that long ago, the option of choosing to own and operate an independent financial advisory practice was probably not on the radar for those working at the big wirehouse operations or even regional firms. But that has changed in recent years. There is a fascinating and relatively short podcast from On Wall Street, where Rick Rummage, who is a financial advisor-turned-career consultant, spells out why increasing numbers of financial advisors are considering the independent channel. It’s worth checking out at HTTPS://ONWALLSTREET.FINANCIAL-PLANNING.COM/PODCAST/WHEN-SHOULD-ADVISORS-GO-INDEPENDENT
Cutter & Company, a Registered Broker-Dealer and Investment Advisor, believes deeply in the value independence delivers for financial advisors and their customers. And we’ve articulated those benefits in several articles. Mr. Rummage not only echoes many of those points, but amplifies them from his unique perspective helping advisors make career decisions.
A central point is that wirehouses make decisions for the best interest of the firm and their shareholders, which any publicly traded company must do. But very often those decisions do not take the needs of the financial advisor into account. He notes seemly constant changes to wirehouse compensation grids as an example. He says those are designed to steer the advisor in the direction the firm wants to go, which is not necessarily the direction the advisor wants to go. Mr. Rummage pointedly states at about the 10-minute mark in the podcast his shock at why so many advisors simply go along with the changes, even though there are other better options out there.
The Most Freedom of Any Model: The Independent Channel
The ‘Great Awakening’ Rummage believes is occurring was delayed by what he sees as “a lot of lies and misinformation” about other options, some of which he believes was spread by the industry. In reality, financial advisors don’t have more freedom at any of the other models available than they would get by going independent. He points out, as we also did in a recent article, that going the route of a pure RIA is a big step, where the advisor is doing everything themselves with no third-party support. Having the help of a broker-dealer and corporate RIA – behind the independent firm – can make all the difference.
‘’You (emphasis added: the financial advisor) are not working for them. They are working for you. They are a vendor providing technology, product and support,” Rummage said at about 14 minutes into the podcast. “There are lots of…boutique firms out there that have high pay-outs and tons of support. And the technology is as good if not better than at some of the wirehouses.”
We have also said before, and continue to maintain, that independence is not for everyone. Mr. Rummage agrees. The people who tend to do well at wirehouses are Type A personalities who excel at sales, but who are not necessarily cut-out to be business owners. Rummage said advisors who want to own their business, develop a brand, market and grow the way they want to market and grow, make their own hiring decisions, design their own office, get relief from what he calls the ‘culture of no’ at wirehouse compliance departments, and keep more of what they earn should seriously take a look at the independent channel.
“The net pay-out ends up being about 70 percent,” Rummage said at around 16 minutes into the podcast. “You end up with about twice of what you would at the wirehouses.”
There are 10 different models for financial advisors out there and more than 1,500 firms, according to Rummage’s unofficial count. If you are considering independence, those numbers can be a bit daunting. So let Cutter & Company be a place to start the process of discerning. With 30 years of experience helping financial advisors run their own businesses their way, we can be a resource to help you sort things out.