More Financial Advisors Looking To Go Independent

By Linda Koco

Advisors on the financial side of the advisory business are increasingly looking at the possibility of going independent once their current contracts run out.

But if they do, they might not go solo. Cerulli Associates has found that many advisors are more likely to join an existing registered investment advisor firm than to start their own firm. This would give them the benefits of independence but with an organizational alliance.

Alternatively, some advisors may migrate over to an emerging business model that Cerulli researchers have dubbed “subaggregator.”

The subaggregators are the next-generation form of financial advisory firm, according to a new report from the global analytics firm. The subaggregators allow advisors the autonomy that independence makes possible as well as provide the support that a shared work structure makes feasible.

The platform of a subaggregator is like that of a larger firm such as a broker/dealer (B/D) or custodian, Cerulli said, noting the firms do have professional leadership in place.

However, subaggregators tend to have multiple advisory practices in the fold, often operating in different parts of the country. In addition, they tend to work directly with those advisors, although each advisor operates as its own business.

A familiar ring

If advisors on the insurance side of the business think this structure has a familiar ring to it, that is not surprising.

The business structure of the subaggregator that Cerulli described is similar to the various producer groups and networks that have emerged in the independent life and annuity business over the years. These include independent agencies that partner, pool or otherwise pull together at predefined levels so they can have greater access to expertise and resources.

Cerulli’s subaggregator definition is also similar to the “aggregator” business model that the Independent Insurance Agents & Brokers of America described in its 2008 guide to “Evolving Options for Independent Insurance Agent & Broker Distribution.”

According to that guide, the insurance aggregator model is structured to enable insurance agency owners to achieve sustained growth while remaining independent entities.

But the subaggregator firms that Cerulli sees on the rise are focused primarily on independent financial advisory firms, not independent insurance specialty firms (although financial firms do sell insurance products too).

In the subaggregator model, the financial advisor’s primary relationship is with the subaggregator rather than the B/D, custodian or platform, according to Cerulli.

In essence, the subaggregators are providing financial advisors with an alternative way to become independent.

The structural details vary by firm. For instance, some advisors may go independent by joining an existing multi-firm RIA, but that RIA may in turn be affiliated with a subaggregator for specified support and services.

The primary relationship with the subaggregator would still be a critical characteristic, however.

Reasons

One reason why these new business models are catching on in the financial services business is that the business model provides advisors with a way to go independent without having to shoulder all the responsibilities for operating their own businesses, Cerulli said.

Nearly three-quarters of wirehouse advisors said their retention contracts will expire by 2019, the researchers pointed out. Those expirations could open the door to departures as the advisors consider their options.

Based on what recruiters have relayed to Cerulli, some of those advisors could go into independent business models.

More advisors are at least considering independence, the recruiters indicated. The top reasons? “Compensation, greater autonomy, value and more personable culture,” the report said.

Another reason the subaggrogation model is on the rise has to do with access to “the culture and community of being part of a smaller organization,” according to the report.

The prospect of running their own businesses may be isolating for some advisors, particularly for those who are going independent for the first time, the analysts reasoned.

Also, advisors who are leaving large firms to go independent may want to avoid one of the pitfalls of working in large firms, which is the lack of a sounding board.

Most likely, some of these advisors will want to be independent, together.

“Many advisors are daunted by the task of forging their own path and the accompanying headaches,” Cerulli director Bing Waldert said in a statement. “Advisors considering the RIA channel are increasingly looking to join existing firms that can provide them with not only the necessary operational infrastructure, but also a sense of community.”

Heads up

If they are looking for a successful subaggregator to consider, financial advisors might want to look for firms that recruit only a few teams a year. The Cerulli researchers found that this approach allows the subaggregator to be more selective, “taking advisors with quality business models and the right approach.”

Also, although interested in moving into some type of independent model, the option of staying in the current business environment should not be ruled out. For many, “the employee model may be the best place to stay, especially if their individual needs are addressed,” the researchers said.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].