Displaying items by tag: recruiting

Wealth managers rely on platforms such as broker/dealers and custodians, and over two-thirds have considered switching their current arrangements, though only 17.1% are actively planning to make changes by 2025 or 2026. 

More successful wealth managers are actually more likely to switch for better operational and business support. Key factors influencing platform choice include financial arrangements, operational support quality, and business development assistance, while personal relationships are less influential. 

Efficiency and negotiating favorable financial terms are critical, as is the ability to find ideal clients through referrals. Wealth managers should critically evaluate the claims of platforms, especially regarding business development support programs. Despite interest in changing platforms, inertia and other demands may prevent many from following through.

Finsum: While the relationship isn’t causal its worth pointing out that higher networth advisors are more active in thinking about their future relationships with their broker dealers.

Summit Financial was founded in 1982 as an independent firm. Over the last 4 years, assets under management grew from $3 billion to over $10 billion as it aggressively recruited talent from wirehouses and other firms. Ed Friedman, the director of business development and growth at Summit, shared some insights on what has driven the firm’s recent success.

The biggest factor is creating a culture that allows advisors to be fiduciaries, grow their own businesses, and have a meaningful stake in the firm’s long-term success. Friedman stresses that clients are ultimately loyal to an advisor and not a company. 

Additionally, advisors at independent firms have more control over their destinies. In contrast, an advisor's fate at a wirehouse or larger institution can be affected by unrelated factors. For instance, many brokers at Merrill Lynch had their equity wiped out in 2008 when it had to be bailed out by Bank of America. Similarly, advisors at First Republic were impacted by the crisis last year, despite the wealth management unit’s strength. 

Friedman also attributes the acceleration in growth to bringing in professional management. This has allowed advisors to focus on clients, prospecting, and financial planning, while other matters such as compliance, backoffice tasks, and administration are handled by the firm. 

Finsum: Summit Financial is more than 40 years old. Yet, the RIA’s growth has exploded in recent years as it has brought in professional management and found success with its independent-hybrid model. 

There have been constant rumors swirling that UBS intends to sell its US wealth management unit. In part, it’s due to the bank’s North American wealth management unit delivering lower returns than its peers and UBS’ wealth management units in other geographies. 

Another factor is that European regulators are reportedly looking to impose increased capital requirements for banks with foreign subsidiaries. The unit has also been underperforming, with profit declining by 31% in Q1 and its cost-to-income ratio more than 20% above UBS’ other geographies. Advisor headcount also declined from 6,147 to 6,079. 

During UBS’ Q1 earnings report, CEO Sergio Ermotti dismissed reports that a sale was on the horizon despite these challenges. He sees a presence in North American wealth management as integral to UBS’ ambitions of being a global bank, adding that “shrinking back to greatness is not a strategy.”

Instead, UBS plans to keep investing in its North American wealth management business, identifying it as a ‘key… growth market’. It believes that over the next 3 years, UBS can shrink the profitability gap with its competitors. Part of its growth strategy is to more aggressively refer investment banking customers to wealth management. 

Finsum: Despite middling results from its North American wealth management unit, UBS dismissed speculation that the unit could be sold. Instead, it plans to invest in the unit and hopes to narrow the profitability gap with peers over the next 3 years.

There is a subtle distinction between fee-based and fee-only advisors. Fee-only advisors exclusively offer financial advice but don’t sell any products with commissions. Fee-based advisors also mainly offer financial advice, but they may also sell other non-investment products with commissions, like insurance. This means that they cannot market themselves as being ‘fee-only’. 

Many advisors are moving to these models due to their simplicity, while there has been an increase in regulations around the fiduciary standard. In fact, the industry as a whole is seeing fewer broker-dealer accounts and growth in investment-advisory accounts. As a result, many products can now be bought in investment-advisory accounts without a commission, such as annuities and alternative investments. 

An important consideration for an advisor going independent is responsibility for compliance. This requires registering with the state regulator or the SEC if there are more than $100 million in assets. It also means responding to regulatory inquiries, developing a compliance program, and having a system to ensure compliance. 

This additional burden highlights the challenge of running an independent shop. Another is that there is less time for clients, especially during the initial stages. Even afterwards, the additional responsibilities will lead to less time and energy for client service, prospecting, marketing, etc. By choosing a fee-only or fee-based model, advisors can have less of a regulatory burden.

Finsum: Many advisors are moving towards a fee-only or fee-based model. The biggest reason is that it simplifies and reduces the compliance demands for advisors.

There is a momentous demographic turnover that reshapes the financial advisor landscape. According to Cerulli, nearly 40% of advisors will be retiring in the next decade. Currently, 60% of assets are managed by advisors who are 55 and older, while the average age of an advisor is 50. 

This reality means that older advisors need to start thinking about succession planning. Proactive and proper succession planning can also help advisors maximize the value of their practice and ensure that their clients remain in good hands. Younger advisors should be formulating a strategy to capitalize on this opportunity. 

Some key elements to successfully transition to the next generation are recruiting to replenish talent, appealing to younger investors, and scaling engagement and client service by leveraging technology. 

At current rates, there are not enough new advisors to offset retirements and attrition. Therefore, it’s imperative that practices invest in recruitment efforts to identify talent and set them up for success. This entails looking at recruits from nontraditional backgrounds who have strong people and organizational skills. 

Another important step is to gear prospecting and client service for millennials and Generation Z. This means understanding their perspective and becoming fluent with technology. Finally, advisors should be investing in technology that can help them scale personalized service to increase their capabilities and serve more clients. 

Finsum: Succession planning will be even more critical in the coming decade due to the massive retirement wave in the financial advice industry. Here are some common elements of successful succession planning.