The line between working for an independent firm and a wirehouse is starting to blur for many advisors—and the lack of freedom and control, along with lackluster economics, has become a powerful motivator to consider other options.

Much attention has been focused on wirehouse breakaways—and for good reason. As shared in our recently released 2022 Advisor Transition Report, independence has been the fastest-growing form of advisor affiliation over the last 10 years. Cerulli Associates projects that by 2025, more than a quarter of the industry’s assets will be managed by advisors in RIA channels. Advisors from the big brokerage firms who are in search of business ownership, additional autonomy, and control over their practices are having immense success joining the independent ranks—especially at a time when the infrastructure and capital solutions to support these de novo businesses have never been more robust. While there are still plenty of tailwinds supporting further breakaway activity, emerging trends indicate that the next wave of breakaways will actually be from within the RIA channel itself. This ever-growing stable of employee advisors at RIAs (also known as non-owner advisors, servicing advisors, and senior advisors) share many similarities with their counterparts at wirehouse firms: They build and service books of business for an employer, fly that firm’s flag, and leverage the platforms and technology that the firm makes available to them. It’s a diverse population of advisors including those who were once wirehouse breakaways themselves in search of greater freedom, next gen talent who are now feeling the “pull” of solo entrepreneurship, or career independent advisors seeking a stronger platform. However, as RIAs professionalize their firms, standardize processes to drive efficiencies, and consolidate at a breakneck pace, many RIA employees now find they have far less day-to-day control than they once had. And while RIA owners certainly benefit from immense freedom, control, and economic riches, these same liberties are most often reserved for them and are not shared equally with their employee advisors. And this is where friction begins to exist. The result is drastically stepped-up movement amongst this group and with the anticipation of more to come. So where can we expect these advisors to land? And what makes an attractive hire? These questions can only be answered with a clear understanding of the drivers motivating their desire for change.

The potential downsides for RIA employee advisors

• While an RIA owner may net 60-75% of its revenue before owner’s compensation, employee advisors are paid salary and bonus, or at a payout most often less than 35% of revenue. In many cases, this logic tracks because advisors are hired to service an existing book of business rather than building a book from scratch. And, of course, the RIA owner took the initial risk to start the business and has overhead to pay. Yet still, many advisors, especially those who can bring in their own clients and have built up a meaningful practice with minimal assistance from the RIA, may feel undervalued relative to their financial contributions to the firm.
• While logic would dictate that RIA advisors have far greater day-to-day control over investments and client service than their wirehouse peers, in actuality, most RIA advisors have far less control. That’s because strategies for well-run RIAs to scale their service model and enhance growth most often include the centralization of investment management and standardized processes. So, when an advisor feels they want to service clients differently or that their firm no longer provides a best-in-class service model, they are likely to consider a path that removes such limitations.
• Conversely, as many RIAs continue to scale, they’ve invested in new services and lines of business—such as tax preparation, family office services, estate planning, business management, and differentiated alternative investment platforms. Advisors looking to expand their offerings to clients may opt to change jerseys for an RIA that they can better leverage to achieve their client service goals.
• Most advisors tend to be growth-oriented and focused on how they can continue to scale their practices and serve more households. Taking stock of how a current firm enables growth can sometimes leave advisors wondering how much value they receive relative to the costs.
• It’s no secret that, across the industry, many practices are run by senior practitioners who often do not have a well-thought-out succession plan. Although the carrot of taking over a business is a very compelling proposition for an employee advisor, many get frustrated with the lack of progress on their rise in the management ranks or in the sharing of equity.
• With M&A continuing to dominate headlines, advisors often pursue other opportunities if their firm is sold or if they expect the firm may be sold in the future. Especially for those who don’t have meaningful equity stakes, there is far less incentive for these advisors to stick around and go through the tough work and unpredictability of an integration process.

What’s next for these advisors?

Right now, in a tight labor market with more legitimate options than ever before, those feeling like the grass may be greener elsewhere often find it to be true. The most popular option for an RIA advisor on the move is to join a competing RIA firm with a stronger advisor-facing value proposition—which may include more favorable ongoing compensation, a platform for growth, additional freedom and flexibility, and more day-to-day support. There are plenty of RIA advisors, though, who are focused on creating their own business; for them, affiliating with a platform provider offering supported versions of independence may be appealing. All that said, the attractiveness of an employee advisor to a new employer or platform is based upon a wide variety of factors. From our experience, those advisors who check the following boxes have far more compelling exit opportunities and can demand more aggressive compensation packages.

• The business was self-sourced and serviced by the advisor vs. those whose clients are “firm relationships,” which are likely to be far less portable.
• They have a limited amount of post-employment restrictions like non-solicitation, non-compete, or whether the firm is a member of the Protocol for Broker Recruiting.
• They possess a hunger to grow and bring in new business.
• They are highly confident in their level of portability. 

The line between working for an independent firm and a wirehouse is starting to blur for many employee advisors. Limitations on freedom and control, along with lackluster economics, are just a few of the drivers that started the big brokerage breakaway movement—and which are now propelling a new generation of RIA breakaways.