10

Paul Sullivan

Managing Director, Sanctuary Wealth
Owner & Managing Partner, Wealth Management Independence (WMI)

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reasons why
wirehouse advisors
should go independent

Ironically, wirehouses are dying in a bull market.

They have abandoned their training programs in favor of locking-up advisors in long-term recruiting contracts. They’re going into downstream businesses such as discount brokerage, which we’ve seen with Morgan Stanley’s purchase of E*TRADE. Their aging advisors are retiring at an accelerating pace. Branch management compensation is on the decline. Culture and morale has been steadily declining for years.

How much worse could this get
when there’s a bear market?

Independence is the fastest growing channel in wealth management today,

and this explosive growth is coming at the expense of wirehouses. Why are veteran financial advisors – some with decades of experience – choosing independence over the “big recruiting checks” offered by wirehouses? This is akin to the old tortoise and hare story, where the wirehouses’ overconfidence and presumptuous attitude made them lazy when it came to steadily building what their advisors wanted and their clients needed. Independent advisors, backed by innovative platforms truly focused on their needs, are now well-positioned to win the race because they have consistently stayed true to serving their clients’ best interests – and that’s where the rewards are found.

If you’re a wirehouse advisor with the entrepreneurial spirit to go independent – you won’t be doing it alone.
Read these 10 Reasons for why you should consider leaving Now!
1

employee vs. business owner

It’s a simple choice:

do you want to control your destiny as a business owner, or do you want to continue to report into a bureaucracy where you have no voice?

Statements often
made by wirehouse financial advisors
Which ones have you said?

  • This place is run by HR and lawyers.
  • I’m not a person here... I’m an employee number.
  • I never see my branch manager - he’s always behind closed doors.
  • With morale so low, you’d never know it’s a bull market.
  • Every new year brings compensation cuts.
  • I have to produce 750,000 to qualify for a private office.
  • I’m having confidential client conversations in an open cubicle.
  • Senior management continues to hire managers that never produced.
  • I share my Client Associate with four other advisors. It’s ridiculous and unfair!
  • I’m sick and tired of selling bank products.

Statements
commonly made by independent advisors
Which would you like to say?

  • ‘It’s my company.
  • I own it.
  • I chose the name on the door.
  • It’s my own LLC.
  • It’s my vision for running and growing the firm.
  • I’m building a culture of learning, trust, and camaraderie.
  • I have so much marketing flexibility.
  • I make the hiring decisions.
  • I offer my clients only what they need.
2

suffocating
compliance
vs. advisor-client focused risk management

Compliance is critical and should
never be taken lightly.

But are you tired of being over-supervised?

Do you find that e-mail review is excessive? What about mutual fund switch letters and activity reviews? Do you find it galling when a compliance manager calls your client?
Knowing how important client communication is, do you get frustrated because you can’t send a letter, a news article or a research report?

It’s as if wirehouse advisors are presumed guilty and they have to prove their innocence.

On the flipside, compliance managers are overworked, underpaid and scared of the system.

They won’t risk their job by saying “yes” to a financial advisor when “no” is the easier answer. Yet every “no” means another client has been inconvenienced and disappointed. And disappointed clients close their accounts. How hard is it to replace a one-million-dollar account? This is called managing to the lowest common denominator!

In the independent space, we take a different approach.

We operate under the belief that clients are honest. We operate under the belief that advisors are honest. We are in the service business and meeting the needs of clients is paramount. Yes, managing risk is important.

However, there’s a difference between managing and eliminating risk!

Whereas we see wirehouses erring on the side of eliminating risk, independent firms trust their advisors, genuinely care about their clients, and find a smart, prudent way to say “yes.”

3

competing with
your employer
vs. aligning with your client

Almost every wirehouse now offers discount brokerage (think how Morgan Stanley acquired E*TRADE) and almost every wirehouse now offers financial planning and investments from a salary/bonus advisor (think how Bank of America absorbed U.S. Trust).

As a result, wirehouse advisors are in competition with their employer!

Internal competition doesn’t exist in the independent space.

Independent firms are 100% committed to the financial advisor model. We are 100% committed to the fee-only model. It’s just that simple!

4

constrained
prospecting

vs. transformational
marketing

Client acquisition
approach

Wirehouse compliance makes it
nearly impossible to:

  • cold call prospects
  • send notes or letters to prospects
  • send emails to prospects
  • use LinkedIn

Independent Firms:

  • have innovative websites
  • produce professionally made videos for prospecting
  • embrace innovative fintech firms
  • leverage the full power of LinkedIn to prospect
  • can financially partner with asset managers (SMAs, ETFs, Mutual Funds as well as private equity and hedge fund managers) to prospect

Client acquisition
approach

Wirehouses

  • cold call prospects
  • send notes or letters to prospects
  • send emails to prospects
  • use LinkedIn

Independent Firms

  • have innovative websites
  • produce professionally made videos for prospecting
  • embrace innovative fintech firms
  • leverage the full power of LinkedIn to prospect
  • can financially partner with asset managers (SMAs, ETFs, Mutual Funds as well as private equity and hedge fund managers) to prospect
5

predatory business
acquisition

vs.
mergers & acquisitions

Wirehouses know that the majority of their advisors live beyond their means and haven’t saved enough for their retirement.

Hence, the wirehouses exploit them with big “up-front” recruiting checks and decade-long contracts that make them employees for life!

Furthermore, wirehouses are basically using their inhouse retirement programs to buy the books of business from aging advisors at a discount. And then they tie up the inheriting advisors for several more years by having them sign contracts.

Meanwhile, independent advisors and their teams are in the unique position to acquire other advisors’ books or RIA's using their sponsoring firm’s capital. They can buy the advisors’ practices from the wirehouses. They can also buy RIA practices.

Essentially, independent advisors can become leaders in the mergers and acquisitions business!

6 grid discount

vs.
grid premium

As a wirehouse advisor, do you think the grid will be higher or lower in three years time?

Even more worrisome is the possibility of some wirehouses moving to salary/bonus compensations. The worst possible scenario is a bear market (-20%) followed by wirehouse compensation cuts, resulting in fee-based contracts being cut by 20%. Wirehouses protect their margins by cutting advisors' pay on top of the 20%.

Independents typically have grid rates that begin at 80% and increase to 90%. Admittedly, independent financial advisors have expenses such as rent and personnel. Hence, the grid typically nets out at 60%.

Bottom line, independent advisors control their compensation.

7 callous or indifferent
leadership

vs.
servant
leadership

Think about the people you work for at the wirehouse, think about those at the top. Do you believe they care about employees? Do you believe they care about you? When your production is up year over year, the answer is yes. How about when you make a mistake or have an off year?

Do they stand with you, or do you stand alone?

When you’re independent, it’s now your firm.

You now have the honor of building the firm you always wanted to work for. You now have the honor of being the leader, coach and mentor that fosters trust and inspires your colleagues to achieve to the best of their ability. You will find that your leadership style will focus on serving your clients, serving your team, and as a result,

you’ll be serving the path for how your new firm will fulfill its true potential.

8

headline risk

vs.
personal goodwill

It takes years to build a pristine reputation, and only a day to lose it! When you work at a massive global wirehouse with tens of thousands of employees, scandal and wrongdoing are almost inevitable. And while you may be far away from the incident,

the corporate brand is tarnished, and you are guilty by association.

Independent advisors no longer have their fate in the hands of corporate behemoths who have teams of people inhouse and at agencies working to repair, polish and restore their reputations after a scandal. As an independent advisor, your years of building personal goodwill with your clients won’t be torn down by a rogue trader or a senior executive found guilty of embezzlement. You will be able to personally manage your team and the reputation of your firm.

You will be able to personally manage your team and the reputation of your firm.

And your clients will respond positively to your commitment to accountability.

9

toxic culture

vs.
positive culture

Corporate culture impacts employees directly and clients indirectly.

And when the culture is toxic, it poisons everyone and everything.

Think about the wirehouse where you work. Would you say the culture is marred by closed doors, complaining, gossip and unfriendliness. Would you say a reflection of the culture is the number of employees who choose to eat alone and the idea of having a holiday party without spouses and guests?

When it’s your firm, you can nurture a “positive culture” where the “boardroom” is often filled with the warmth and laughter of office birthday parties and holiday celebrations. Would you say the culture of your new firm would welcome the open celebration of marriages and births? Would you say the culture of your new firm would welcome employee and client children into office and encourage your team to volunteer at a charitable organization? Do you envision running the type of firm where holiday parties include spouses and significant others? Why not?

It’s your call.

You get to influence the culture that’s best for your team and your clients.

10 profits

vs.
clients

Wirehouse advisor compensation has gone down every year for the last 20 years.

Do you believe that trend will change? Wirehouse manager compensation has gone down every year for the last 20 years. Do you believe that trend will change? Spending on training for veteran advisors as well as client associates has gone down over the last 10 years. Do you believe that trend will change? Wirehouses have closed more offices than they have opened over the last 10 years. You get the point.

Senior management’s strategy is simple. Cut expenses!

Advisors’ revenue generation has risen because of the bull market, but sadly, management has continually cut expenses - often to the detriment of the advisor. If management is cutting expenses in a bull market, you can only imagine what will happen in a bear market.

Independent advisors simply do what’s morally and ethically right for their clients.

We offer holistic financial planning, asset allocation, sound investment methodology, and annual performance reviews to evaluate goals attainment. This approach leads to referrals. It leads to AUM growth. It leads to revenue growth. Which empowers independent advisors to continue to invest in their own company.

A simple, but highly effective business model.