Most Financial Advisors Want to Operate Independent Practices, Cerulli Says
Dec. 16, 2022 1:31 pm ET
Hundreds of financial advisor teams, some of which oversaw multi-billion-dollar books of business, have left the nation’s biggest brokerage firms to open independent practices. It’s a decade-old trend and unlikely to abate any time soon, according to research firm Cerulli Associates.
An overwhelming majority of advisors, 71%, say they prefer the independent model, but only 44% of advisors are currently independent, according to a new report from Cerulli Associates.
“This suggests that there is still an excess demand for independent affiliation among advisors, which will likely drive the growth of the independent channels over the foreseeable future,” says Michael Rose, associate director at the research firm.
Advisors are drawn to independence because they want greater autonomy, a higher payout, and the ability to build equity in their own business, according to Cerulli Associates.?
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The quality of available technology is also a major factor in advisor retention. “Firms that are laser-focused on maximizing the quality of the resources they offer to advisors in terms of their products, services, and support, along with those that offer flexibility in affiliation options, are most likely to succeed in recruiting and retaining top advisor talent,” Rose said.
On average, the typical wirehouse advisor manages more than twice the assets of his or her industry peers. But independent firms are growing assets at a faster rate than the wirehouses, in part because the independent sector is attracting more advisors, according to Cerulli Associates.?
For advisors, there are multiple affiliation models, but they essentially fall into two buckets: employee and independent. The former includes banks and wirehouses such as Merrill Lynch and?Morgan Stanley?.?The independent channel includes registered investment advisory firms and big independent broker-dealers, which operate almost like franchise networks.?
There is a lot of variety within independent RIAs. There are small registered investment advisory firms that sometimes employ just a handful of people and?big RIAs?that are developing a national presence.?
To be sure, not all advisors want to be independent, a fact that?LPL Financial?,?the nation’s largest IBD with more than 20,000 advisors, recognizes. The San Diego-based company?launched?an employee advisor unit in 2020.
Cerulli Associates also finds that all firms, employee and independent, will soon face a talent shortage because more than one-third of advisors are expected to retire within the next ten years.