Breaking away: Brokers covet independence more than ever
The lure of independence is stronger than ever.
Close to half of potential breakaway brokers feel even more strongly about going independent than they did at the end of 2018, with 44% percent saying they will make the move in the next year, according to a recent survey from TD Ameritrade.
Earlier this year, TD Ameritrade CEO Tim Hockey observed that brokers thinking of going independent were going to “sit tight for a while longer” during a downturn he didn’t foresee lasting very long.
The uptick in breakaway activity came in March, says TD’s managing director of institutional consulting, Scott Collins. Volatile markets in the previous few months led advisors to put their clients’ needs first and refrain from making big career changes, according to Collins.
“Advisors during that time were very focused in holding the hands of their clients in such a tumultuous time,” he says. “Now that the economy is in a better place, the mood has lifted and they’re able to focus on themselves.”
As the number of transitioning brokers rise — independent RIAs saw a net gain of 3,184 advisors in 2018 — the main drivers remain the same: advisors want more control for more profit.
Ninety-three percent of breakaway brokers believe that independence offers them as much, if not more, income than their previous firm, according to the TD survey. According to Collins, this isn’t far from the truth.
“If you look at most advisors and reps at wirehouses, they’re at 35% to 45% payout, give or take,” he says. “As an RIA, there is a pass through of 100% of the payout to them — but they have to run the business from there.”
But payouts is just one reason brokers leave the mothership, according to Collins. Primarily, he says, it’s about control.
Regulatory constraints continue to push brokers toward independence, as having more authority is the leading motivation breakaway to leave since TD conducted the same survey in 2017.
Advisors are also looking to move away from FINRA’s oversight, according to Collins. The idea of owning their own business where they decide everything from marketing strategies to client types to the price of fees is very motivating, he says.
Fear of the unknown remains a daunting hurdle, however, although that concern may be overblown.
Of the advisors who have already made the move, 80% say the transition to the independent RIA channel was easier than expected and 72% transitioned all the clients they wanted to keep.
As for the 33% of advisors looking to join a preexisting firm instead of running their own practice, Collins says there’s a healthy market for them in independent firms and practices looking to expand their numbers.
Indeed, the number of breakaways from wirehouses, IBDs and large RIAs more than doubled in the second quarter to 192 from 94 in the previous quarter, according to Echelon Partners.