Wealth Management
(Los Angeles)
Regulators might be about to really shake up the all important annuities market. The National Association of Insurance Commissioners, which is comprised of state level regulators, has just proposed a new suitability standard for annuities transactions. The new rule would require insurance brokers to act in the best interest of clients when recommending products. The specific wording used says that the insurance salesperson must act “without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest” and that they must “without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest”. Speaking about the rule, the NAIC says “It’s in harmony with what the SEC did but goes a little further in providing clarity as to what the conduct standard actually is”.
FINSUM: The annuities market has had some bad behavior so a clean up to give peace of mind to all involved is warranted, but this will likely mean big changes if it comes to pass.
New York)
Yesterday we ran a piece explaining the level of AUM advisors need to successfully breakaway (cheat sheet: $50m-$100m). Today, we wanted to hit on another key topic: what percentage of clients typically come with an advisor when they break away? Now, this obviously varies a great deal based on particular circumstances, but according to Kestra, the typical rate is 80% in their experience.
FINSUM: This is useful, but only to a point because many advisors will have a great deal of their assets concentrated in a small group of clients, meaning it is a fairly tight number of make or break accounts.
(New York)
Breaking away is a tense process for advisors. Not only is there the emotional “fear gap” about venturing into the unknown, but even considering the move is difficult. One of the major reasons why is that it is hard to know how much your comp might increase or what kind of deal you might get for moving. Advisors often ask themselves “what does my business need to look like in order to make a successful move?”. Well, here is some insight. Larger firms, say with $5m+ plus in revenue can easily afford to make the transition and hire all the consultants necessary to make a successful switch. However, the less known reality is that even solo advisors with between $50m to $100m in AUM can be very successful in moving. Payouts for such advisors can approach 80%, meaning those bringing in $500k of revenue can reasonably hope to keep $400k of it. As a rule of thumb, advisors’ take-home pay usually jumps 10-15 percentage points when breaking away from a wirehouse.
FINSUM: This is very useful information. We drew it from a number of sources, including Kitces.
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(New York)
There is a little known stimulus behind the current trend of advisors breaking away from wirehouses. While many cite freedom of operations and compensation as key reasons for leaving wirehouses, one of the big driving forces is much less appreciated: the requests of clients themselves. According to Shirl Penney, CEO of RIA network Dynasty Financial Partners, “Clients are not simply following their advisors, but sometimes giving them the idea to break free … That’s the dirty little secret that not a lot have been talking about”. High net worth clients increasingly want their advice separated from the manufacturers of the products they buy, which means going independent makes sense for advisors. “So if you’re a million-dollar client of one of our advisors, you now can get independent advice, separate and safe custody and products from around the street the same way that may have been reserved for a billionaire 20 years ago”, according to Penney.
FINSUM: This topic is quite poorly discussed, but seems very salient. We would welcome any emails/opinions from advisors about the extent to which they hear this from clients. Reach us at This email address is being protected from spambots. You need JavaScript enabled to view it..
(Washington)
Elizabeth Warren, top Democrat in the running for the presidency, has been looming over the wealth management sector for months. She has staunchly consumer-protectionist leanings, but yesterday she made very apparent how she feels about forthcoming regulation in wealth management. Warren wrote a letter to DOL Chief Scalia warning him about the forthcoming DOL rule. “Given your past statements that the fiduciary rule ‘is a matter that ought to be addressed by the SEC,’ I am concerned that the DOL may simply copy the wholly inadequate standards of conduct framework developed by the [SEC] in its recently-finalized Regulation Best Interest (Reg BI)”, she said, continuing “Americans’ savings should never be willfully compromised by conflicted actors operating under anemic rules — but they are … broker-dealers to give clients advice that is not in their best interest”.
FINSUM: Usually one would argue that politicians don’t know much about the ins and outs of wealth management, but Warren knows much more than usual given her background with the CFP. That makes her a very significant opponent for the industry.
(New York)
Breaking away is one of the biggest moments of an advisor’s lives. So much can go wrong and so much can go right. One of the most daunting aspects of breaking away is losing the infrastructure of a large firm, especially the tech infrastructure. So much of the success of breaking away depends on giving your clients a great experience during the transition, so choosing the right infrastructure is crucial. In order to avoid making a mistake, it is crucial to hire a consultant who specializes in the area. They will be able to tailor the tech you should get to the unique needs of your clients and your firm.
FINSUM: This is a very good idea as one of the biggest headaches (and potential sources of nightmarish stories) is making poor tech choices. Checkout LibertyFi, a specialist consultant in the area.