The financial services industry is changing, as evidenced by numerous data points released in the 2018 FINRA Industry Snapshot. Among the report’s statistical highlights, industry-wide topline growth rose a remarkable 14% over the past two years to $309 billion. The report also showed an increase in the number of advisors leaving their firm for another, with a total of 26,908 transfers in 2017. Additionally, the FINRA report notes that small firms now make up an inconceivably large 90% of the financial services industry. So what does all of this mean? With numbers such as those illustrated in the FINRA report, combined with the anecdotal evidence we hear on the street every day from advisors, all indicators point in one direction – that there is new paradigm for success in financial services and it’s leaders are RIAs, Hybrids, and Independents.
The industry-wide push towards a more evolved financial services business model has been coming for quite some time. Advisors have become weary of the inaccessibility of management, lack of support, operational inflexibility, and overall culture stagnation and negativity which rule the day at Wirehouses. In order to achieve for their clients, and recognize financial upside for themselves, advisors need to be able to act smart, quick, and efficient. These strategies, operationally speaking, are simply impossible at Wirehouses who are themselves defined by their hierarchical and slow moving management structure. As such, advisors are looking elsewhere for the systems and processes which will support their book of business as it must be managed today, and they are finding their answer in RIA, Hybrid, and Independent firms.
RIA, Hybrid, and Independent firms offer the best of what a financial services firm can be and are everything a Wirehouse is not. These firms thrive on an open access management style which gives advisors the ability to obtain quick feedback and strategic direction. The technology available to advisors at RIAs, Hybrids, and Independents is also superior as these tools are selected and integrated using collaborative, company-wide feedback. This results in operational systems which truly reflect the needs of the advisors and not just the “this is what we think you need” edict of a C-suite manager, as is the case at the Wirehouses. Additionally, the flexibility and more forgiving compliance structure of an RIA, Hybrid, or Independent firm frees an advisor in such a way that success is based on their merits alone and the financial benefits they reap for their customers and themselves is a reflection of their expertise and effort.
It should be noted that the changes occurring today in financial services are not only being driven by the advisors, but also by the customers, whose evolution has resulted in the catalytic shift in our modern economy. Gone are the days when the fact that you are a big bank with an imposing lobby was enough to impress a potential customer and garner their business. Today, customers not only require but demand immediate access to information and utter transparency from their financial partners. This shift in client thinking has proved dramatically unsupportive of the dated management philosophies found at most Wirehouse firms, whose endless hidden agendas, and constantly shifting and confusing corporate policies prove both ineffectual and disingenuous to the customer. Here enters the advantages of the RIA, Hybrid, or Independent. With nimble business structures and corporate philosophies which thrive on engagement and change, smaller and independent firms are better able to service the needs of the modern financial services customer.
Which brings us to the RIAs, Hybrids, and Independents, themselves. The trajectory of the financial services industry certainly proves that the power position of these firms will become an evermore vital component of the world economy. It then becomes imperative to understand which competitive differentiators the RIA, Hybrids, and Independents must navigate amongst themselves in order to stand out from the rest. The one key factor that is, and will remain, the most successful way for an RIA, Hybrid, or Independent to gain competitive advantage is the firm’s ability to most successfully recruit advisors. Attracting and retaining the best of the best from the advisor pool results in a stable, growing, and lucrative book of business. Whether a firm has a sustainable and ongoing recruiting policy in place can certainly be viewed as the benchmark as to whether the firm is positioned to grow and thrive in step with the industry as a whole.
A new economic era has begun and it is with the RIA, Hybrid, and Independent firm at the forefront. Rest assured, we have not seen the end of the Wirehouse as the size of these firms, which is only matched by their coffers and egos, will not let them go down without a fight. What will ensue is certain to be the financial services version of the David and Goliath tale, the result of which will define our industry for decades to come.
