1 Dispelling Myths and Fears of Going Independent January 2015
2 Table of Contents Introduction & Methodology 3 Respondent Profile Channel 5 AUM 6 Time in Industry 7 Past Experience 8 Expectations for Future 9 Transition Decision Process Decision to Go Independent 11 Selection Process 12 Transition Process Concerns Versus Actual Experience 14 Positive and Negative Aspects of Independence 15 Transition Support16 Communicating Move with Clients 17 Client Retention 19 Change in Net Revenue 20 Satisfaction with Move 21 Write-in Responses 22
3 Introduction & Methodology Overview Methodology, data collection and analysis by Penton Research, the research arm of Penton Media, parent company of WealthManagement.com. Data collected January 7 through February 4, Methodology conforms to accepted marketing research methods, practices and procedures. Primary Objectives Determine the concerns of advisors when considering a career change. Examine the benefits and drawbacks of moving to an independent channel by advisors who have recently changed firms. Determine what advisors would have done differently, and what advice they would offer others considering a change. Methodology On January 7, 2015, Penton Research ed invitations to participate in an online survey to members of the WealthManagement.com database who reported their channel as Independent BD or RIA. By February 4, 2015, Penton Research had received 249 completed surveys. Of those, 112 met the qualifications of having moved to an RIA or IBD firm in the past five years from a different financial services firm. Response Motivation To encourage prompt response and increase the response rate overall, a live link to the survey was included the invitation to route respondents directly to the online survey. Reminder s were sent to non-respondents. The invitations and survey were branded with the relevant property name and logo, in order to capitalize on brand affinity. Each respondent was afforded the opportunity to enter a drawing for four one of four $100 Visa gift cards.
4 Respondent Profile
5 Channel For the purposes of this study, Advisors at Independent Broker Dealer firms and RIAs who had moved to their firm from a different financial services firm within the past five years were specifically selected. Forty-six percent of respondents are with IBDs, while fifty-four percent are with RIAs. Among the RIAs, about half joined an existing firm, while the other half started a new firm. Which of the following best describes your firm? Independent broker dealer 46% Did you join an existing RIA firm, or start a new firm? Joined an existing firm 55% Independent RIA firm, no broker/dealer 34% Independent RIA firm, also affiliated with a broker/dealer 20% Started new firm 45% Base for chart on left: All respondents (N=112) Base for chart on right: All RIA respondents (N=60)
6 AUM The size of respondents books of business varies greatly. Twenty-seven percent of respondents manage assets of $50 million or more, while an additional twenty-seven percent manage assets of $25 million to $49 million. Forty-six percent of respondents have an AUM of less than $25 million. For classification purposes only, what are the total assets you individually manage (i.e., what is your AUM)? $150 million or more 8% $100 million to $149.9 million 10% $50 million to $99.9 million 9% $25 million to $49.9 million 27% $10 million to $24.9 million 19% Under $10 million 27% Base: All respondents (N=102)
7 Time in Industry The majority of responses have been in the industry for 10 years or longer. All respondents had moved to their current firm within the past 5 years. How many years have you been a financial advisor? In total, how long have you been with your current firm? 15% 22% 14% 21% 11% 9% 7% 3 to 5 years 40% 3 months or less 4% 4 to 6 months 5% 7 to 9 months 4% 10 to 12 months 8% Less than 5 years 5 to 9 years 10 to 14 years 15 to 19 years 20 to 24 years 25 to 29 years 30 years or longer 1 to 2 years 38% Base for both charts: All respondents (N=112)
8 Past Experience The majority of respondents have worked with two or three financial service firms in their career. Thirty-four percent of respondents indicate their most recent move was from an IBD. Twenty-eight percent moved from an RIA and nearly one in five moved from a wirehouse or regional firm. How many firms have you worked for over your career in the financial advisory industry? Which of the following best describes the firm that you were with PRIOR to joining your current firm? Five or more 17% Two 30% Independent broker dealer Independent RIA firm, no broker/dealer Wirehouse 11% 19% 34% Independent RIA firm, also affiliated with a broker/dealer 9% Four 21% Regional firm Insurance agency (independent or part of national distribution) 8% 7% Bank brokerage 3% Three 31% Two Three Four Five or more Bank trust services or private client department Other 2% 8% Base for both charts: All respondents (N=112).
9 Expectations for Future Nearly nine in ten respondents expect to still be at their current firm two years from now. How likely are you to still be at your current firm two years from now? Definitely will 56% Probably will 33% Probably will not 7% Definitely will not 4% Base: All respondents (N=112)
10 Transition Decision Process
11 Decision to Go Independent Respondents were most likely to have their clients best interest in mind when deciding to go independent. A majority of respondents also considered their own economical benefits when making the decision. To what extent did each of the following contribute to your decision to go independent? 5 = Primary driver of my decision Rating = 4 Doing the right thing for my clients 55% 28% Economic benefits 23% 41% Creating a legacy or an business I could eventually monetize 32% 20% Tarnishment of my firm s brand 7% 13% Base: All respondents (N varies from 111 to 112)
12 Selection Process When evaluating firms to transition to, the majority of respondents considered the service they could offer clients, the level of independence and the product offerings as extremely important. Respondents were less concerned with the brand name of the new firm and the practice management tools offered by the new firm. How important were each of the following in the selection process for your new firm (or custodian if you are an independent RIA)? 5 = Extremely important Rating = 4 Better able to serve clients Level of independence 57% 63% 27% 24% Product offerings 50% 23% Technology platform 41% 24% Payout Transition support offered by new firm 33% 37% 24% 16% Brand name of new firm Practice management (e.g., coaching, tools, services) 26% 25% 17% 20% Base: All respondents (N varies from 105 to 109)
13 Transition Process
14 Concerns Versus Actual Experience When leaving their previous broker, one third of respondents were concerned about the transition aspect. However, only sixteen percent actually experienced difficulty. Twenty-seven percent were concerned about their clients making the transition with them, but only one in ten indicated it was difficult to get clients to move. Twelve percent of respondents indicated that their firm took legal action against them. However, for each problem considered, a majority of respondents did not consider solving the problem difficult. To what extent were you concerned about each of the following when leaving your former broker-dealer? Concerned (rated 4 or 5) Neutral (rated 3) Not concerned (rated 1 or 2) In reality, how difficult was your experience in solving for each of the following? Difficult (rated 4 or 5) Neutral (rated 3) Not difficult (rated 1 or 2) The transition will be a nightmare 33% 27% 40% The transition of assets 16% 23% 61% My clients won t come with me 27% 18% 55% My clients coming with me 10% 27% 63% Compliance 23% 31% 45% Compliance 13% 23% 64% My firm will proceed with legal recourse 15% 17% 67% Legal recourse 12% 14% 74% I don t know how to set up my own office and manage a business 11% 20% 69% Setting up my own office and manage a business 8% 30% 62% Base: All respondents (N varies from 108 to 111)
15 Positive & Negative Aspects of Independence The most positive aspect of going independent is being better able to put client needs first. The opportunity to build their own business and increased autonomy are each considered a positive aspect by nearly three in four respondents. Transitioning pitfalls and client resistance were most likely to be considered negative aspects. Twenty-nine percent of respondents did not see any negative aspects. What do you believe were the most positive and negative aspects of going independent? Positive aspects Negative aspects Better able to put clients needs first 85% Transitioning pitfalls 37% Opportunity to build my own business 74% Client resistance to my changing firms 32% More autonomy 71% Hiring staff 15% Change in compensation model Opportunity to increase business 55% 46% Legal issues with taking clients with me 13% Opportunity to receive more referrals 30% Technology is out of date 13% More up-to-date technology 27% Loss of referrals 8% Other 5% Other 6% Did not see any positive aspects to changing firms 1% Do not see any negative aspects to changing firms 29% Base: All respondents (N=112). Multiple responses allowed.
16 Transition Support Nearly two-thirds of respondents indicate that transition support was available to them when they transitioned to their new firm. Respondents found completing and verifying paperwork, pre-transition planning and client account bulk transfers to be most useful. When you made the move to your current firm, did you utilize a dedicated account transition team at your new firm to aid you in the process? Yes, my new firm provided a transition team 40% I hired my own consultant/ team to help with the transition 2% No, my transition was self-directed 36% No, but transition support was available 22% How useful were the transition support services offered by your new firm? (Percent rating 4 or 5 on a 5-point scale.) Completing and verifying account opening paperwork Pre-transition planning (task lists, checklists & timelines) Client account bulk transfers Onboarding & training Recommendations/advice on different types of business models Referrals to service providers (compliance, technology, Human Resources, Real estate, etc.) Tools to estimate the financial implication Tailored transition plan Site visits Client Communications (letters, brochures, s, etc.) 30% 30% 29% 28% 36% 35% 42% 39% 45% 44% Base: All respondents (N varies from 101 to 105).
17 Communicating Move with Clients Respondents personally reached out to clients through phone calls, in-person meetings, personal s and letters to communicate their move. Overall, clients reacted with support. Once you were legally allowed to communicate your transition to clients, how did you do it? What was the typical client reaction to your announcement? Personal phone calls 84% Support 76% Scheduled in-person meetings 66% Personal communications 49% Excitement 35% Personal letters 44% Apprehension 21% Form letters to clients 21% New firm sent communications 10% Confusion 11% Mass communications 10% Other 3% Other 2% Did not communicate 6% No reaction 11% Base: All respondents (N= 107). Multiple responses allowed.
18 Communicating Move with Clients (cont.) Advisors are likely to tell clients they are making a move in order to better serve them. The biggest obstacle in convincing clients to move is the fear of change. More than one in three did not encounter any obstacles when convincing clients to move. What reasons did you give clients for the change? What were the biggest obstacles in convincing clients to move with you? Better able to serve them 79% Fear of change 55% More products and services Better for my own business Better firm 43% 39% 38% Loss of/change of brand name Change in business model (e.g., commission business to fee business, etc.) 9% 20% Better technology 28% Change in product offerings 8% Fee-based relationship Better brand 13% 10% Other 5% Other 14% There were no obstacles 37% Base: All respondents (N=107 for chart on left and 106 for chart on right). Multiple responses allowed.
19 Client Retention Advisors are likely to retain the majority of their clients when they changed firms. Information about the new firm, either general information or information from an objective party or testimonials from other clients of the firm, would have caused more clients to move. What percentage of clients did you retain when you changed firms? A majority of clients 79% Less than half of clients 21% What do you think would have resulted in more clients making the move with you? An objective third party for the clients to speak with Information on safety and security of new firm Background information on the new firm Referrals/testimonials from other clients of the firm Information on newly available investor services & support A more involved transition services team Information on newly available products Experience of advisors at new firm Information on new fee-structures Other 4% 15% 18% 21% 20% 23% 27% 26% 30% 29% Base: All respondents (N=107 for chart on left and 96 for chart on right). Multiple responses allowed for chart on right.
20 Change in Net Revenue The majority of respondents experienced an increase in revenue as a result of their move. Of those, sixty percent indicate their revenue increased twenty-five percent or more. How has your net revenue changed as a result of your move? (Not including general changes in market conditions) By what percent did your net revenue increase as a result of your move? 50% or more 26% Increased 62% Stayed the same 17% 25% to 49% 34% 10% to 24% 32% Unsure 4% Decreased 17% 1% to 9% 8% Base for chart on left: All respondents (N=106). Base for chart on right: Respondents who had an increase in revenue (N=65).
21 Satisfaction with Move Respondents and their clients are satisfied or very satisfied with the move. Advisors are most likely satisfied with being their own boss, and the freedom to place clients in the products that best serve their financial needs. As a result of your move, how would you rate the following: What gives you the most satisfaction when thinking about your business now? 5 = Very satisfied Rating = 4 The fact I am my own boss 67% That I am not beholden to quotas or products pushes 63% Clients' overall satisfaction 43% 41% A wider selection of products to offer my clients 53% Respondent's overall satisfaction 45% 34% The economic benefits 51% Other 8% Base varies from 102 to 104.
22 Write-in Comments
23 Write-in Responses Did your old firm take legal action against you when you left? (Please explain) Based on the contract I signed. One of multiple reasons, was the non-conducive working environment, in which I did not feel comfortable brings clients to the office. A lot of broken promises. Cease and desist letter for soliciting clients. Don't know yet. Had taken up-front money Legal proceedings for a non-compete contract that they claimed I signed but couldn t actually produce. Made it harder for my clients to move, not really legal but challenging Scary but unsubstantiated letter They threatened lawsuit They tried. I hired an attorney who sent them a letter and they stopped pursuing it. Cost $5,000 and some stress Threatened Threatening calls and letters Tried to prohibit
24 Write-in Responses What were the biggest obstacles in convincing clients to move with you? (Other responses) Inability to contact Paperwork required Institutional loyalty to other firm Tax considerations What do you think would have resulted in more clients making the move with you? (Other responses) 100% of my clients stayed with me I lost less than 10 clients 99.4% of assets were successfully moved. More discussion in advance Ability to move assets No barriers All clients moved with me None Geographic location Nothing I am a sole practitioner which scares some Quicker actions by regulators I chose specific clients to come and around 87% followed me. What gives you the most satisfaction when thinking about your business now? (Other responses) Better able to care for staff and clients Future additional compensation Can better serve clients I can be fee-only Clients like that I am always available Less layers of management Firm no longer in national news
25 Write-in Responses If you could give one piece of guidance to other advisors at the wirehouse firms, what would it be? Be Bold. Be careful, but not afraid - it's not as hard, or as scary, as your firm is telling you. Be prepared for a few wrinkles here and there but stay positive- it all gets better after the first year! Build strong relationships with clients and never over-sell the virtues of the firm. Create your own destiny Do hesitate. Take the step. It will change your life. Invest in your business to increase your life DO IT RIGHT NOW!!!! Do plenty of research and ask veteran advisors for advice/their experience. Do right by your clients and they will do right by you Do what is best for you and your clients. Do what is best for your clients, don't wait any longer than you have to. Do your homework and compare what opportunities are out there. Look at the entire package- not just payouts. Don't Hesitate to Go Independent Don't think you need to stay there. Due Diligence is key before move Explore your options Get out of there. Do it today. Get out! Go independent 2 mentions Go independent and hire office staff! Go independent as quick as you can! Go Independent asap GO INDEPENDENT NOW!!! Go independent! No proprietary products to sell. Have the courage to step away from the dark side - you'll feel much more aligned with your clients interests
26 Write-in Responses If you could give one piece of guidance to other advisors at the wirehouse firms, what would it be? ( continued) I have never been at a wirehouse. That said having wholesaled to wirehouses, I find them repulsive!!!! If you want to move, do it now!! Independence is daunting but the rewards are well worth the effort in the long run. Independence is the best model Independence is the way to go - You are the value not your firm. Independent firms give you exactly that- independence- and all that goes with it. Independent is the way to go... It's not easy, but it's worth the effort to custom build a company that you OWN and that serves the best interests of your client base. Keep your professional options open to making the move to independence. Leave now! Go independent right now. It will be the best decision you will make in your professional life. Do it and don't look back. Leave the mothership. Leave! Look after clients first, everything else is easy. Focus full attention on client accounts that transferred to new firm and not worry about client accounts that did not transfer. Look at the opportunities of being independent and develop a drawn out Business and Marketing plan, be prepared well in advance. Before you make the move, inform clients beforehand, so they know in advance what to expect. They will appreciate it. When you do this, the transition will be smoother for your clients and you. Look at the previous market cycle and review your strategies. What resources did you use to manage your clients? In hindsight, what would you have done differently? Was there anything offered by your firm that you didn t take advantage of? What was your process of determining asset allocation and investment product selection? What options were available? Would your clients performance been better if that process was different? Discuss with an advisor from an independent firm what their process and results were for a similar client during a similar cycle. Look for people you trust to give you advice and support.
27 Write-in Responses If you could give one piece of guidance to other advisors at the wirehouse firms, what would it be? ( continued) Make sure all of the products you want to offer exist at your new firm Make sure you have all your bases covered before initiating a change Make the change; it's worth it. Make the move sooner than you think you're ready to. Don't worry about clients not coming with you...most work with you because of you, not the company's name or reputation. Manage your own business. It will benefit you and your clients. Move sooner, don't be scared. Regardless of what your boss does, make sure you do the right thing and document everything Selling products and acquiring new accounts is important, but building relationships is critical. If you move, relationships will follow you, and accounts can go anywhere. Stay positive Take your time with due diligence, determine whether and what kind of help you'll get with the transition (I had zero), copy ALL of your documentation and account information before announcing your move because your former place will cut you off immediately, have all your ducks in order because there will be no going back and no help from your former place. The payouts in the independent broker-dealers are significantly higher. The wirehouse does not really do much for the advisor other than national advertising. The unknowns of leaving the wirehouse (W-2) compound and becoming an independent (1099) can be intimidating. There is not nearly as much risk in transition as you would think if you have been long tenured and stable. What are you still doing there? Work hard