Wealth Management
(New York)
Here is an eye-opening stat for anyone working in wealth management: 37% of all advisors expect to retire in the next decade. That will put about 39% of all AUM in the industry in motion. The biggest surge in retirement will be on the B-D side of the fence. The major question is who will replace all these advisors? “While some progress is being made, the industry is struggling to recruit and retain advisor talent that is adequately prepared to inherit the businesses … In an effort to overcome this challenge, firms are boosting recruiting efforts to bring new advisors into the industry and revamping training efforts to improve success rates”, says Cerulli Associates.
FINSUM: Succession panning has not been very good in general, so there are big questions about how this will play out. This is either one of the best opportunities in the history of the business, or the whole market might shrink naturally if older advisors retire and Millennials don’t hire new ones.
(New York)
One of the ways that wirehouses have been trying to make their brokers (and their brokers’ clients) more sticky is by pushing loans. Brokers are encouraged to get clients to borrow money. These loans have the effect of binding clients to firms for long periods, and correspondingly, it makes it harder for brokers to breakaway because clients are more likely to stay put. However, some RIAs are combatting the trend by offering to replace client loans during the transition period when brokers are joining their firms. Perhaps even more interestingly, custodians are getting into the game too, with Schwab announcing recently that they would be increasing lending products available to advisors to help them transition clients away from wirehouses. The loans provided often have lower interest rates than what the wires offer, so the success rate in migrating clients has been quite high.
FINSUM: The loan game has been the domain of the wirehouses for years, but with the big custodians getting involved, this is another important structure that will make breaking away easier.
(New York)
If you are considering going independent, Charles Schwab has an interesting new survey for you. Thousands of advisors have been flowing out of wirehouses and large regional brokerages over the last few years. They have either gone completely independent or joined independent broker-dealers. In either case, a new survey from Charles Schwab shows that such advisors are very happy. In fact, 90% of advisors who have gone independent report that they have no regrets about their choice to go it alone.
FINSUM: The reality is that most advisors say that whether you become an RIA or go to an IBD, you can serve clients better and make more money at the same time. The general opinion is that with an RIA you lose a lot of structural support, but you keep everything for yourself; while with an IBD you keep more structural support and still get much higher payouts than at a wire.
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(New York)
A lot of advisors have been going independent lately. Whether you are moving to start your own RIA or want to join a large independent broker-dealer network, there are a lot of intricacies involved with running your own shop. Before you even think about the logistics of moving, it is important to assess whether you have the skills to succeed. There are essentially three skills that one needs to become a successful independent advisor: operational experience, in-depth relationship management skills, and sales/business development acumen. Operationally, you will likely have a tight budget when first breaking away, so understanding the nuts and bolts of the business, like migrating client accounts, is critical. Secondly, you will need to be able to concisely define the nature and scope of your relationship with clients in order to keep them happy for the long-term. Finally, you will need to be able to convince people why they should manage your money (without the weight of a wirehouse brand behind you!).
FINSUM: As a companion to the above, Michael Kitces notes that most successful independent advisors had seven years experience before going it alone.
(New York)
The Charles Schwab-TDA acquisition will likely have a host of implications for advisors. While it will take time to figure out and explore all of those, one of the immediately negative effects will likely be less funds available on the platform. As advisors will know, TDA did not have its own suite of ETFs, while Schwab does. This meant that TDA did not favor its own funds on its platforms and there was plenty of room for everyone. Schwab openly favors its funds. With the platforms now combining, smaller funds of all varieties are going to be more challenged to find buyers and survive. Even large fund houses like BlackRock might be at a disadvantage because of how the deal will help Schwab grow its ETF offerings.
FINSUM: this is going to lead to further consolidation in the fund business and will likely allow Schwab’s ETFs to grab even more market share. They are currently in 5th place.
(New York)
One of the biggest problems in the ESG/Sustainable investing space is finding out whether specific companies actually fall within the scope of such considerations. The space is becoming slowly more transparent, but sorting good from bad companies is still one of the major search and cost challenges of investing in the area. Well today we have more info on a new screening tool, called As You Sow, which helps investors sort good from bad companies and find companies and funds which match their desires. The new tool allows you to screen for certain characteristics: “deforestation free funds”, “gun free funds” etc.
FINSUM: Every advisor has clients for whom ESG is an important consideration (especially those with clients trending younger) and this is quite a helpful (and free) tool.