Independence by any path is still independence

In full disclosure, I’m a wirehouse convert to independence. I was an adviser-turned-branch-manager for a large wirehouse in New York City in 2006 when I lost an adviser to a registered investment advisory firm. Back then, I wasn’t even sure what an RIA was. I was the typical arrogant wirehouse manager who thought the independent wealth management industry could never compete with the big firms. Boy, was I wrong. The industry, advisers and the firms that support them have changed dramatically since I was part of the founding management team at HighTower. 

Several years later, one of the heads of the wealth management business at a wirehouse asked me to come see him to discuss the independent space. In that meeting he told me that he thought all the hype from the media about this breakaway tsunami was overblown, and he just didn’t see many advisers willing to make the leap. Overblown or not, every storm starts with a few ripples on the shore. We see those ripples, and adviser firms ignore them at their own peril.

The tsunami has certainly begun. The total number of RIAs in the U.S. continues to climb every year, reaching 14,000 in 2020. Independent teams have an abundance of options to choose from as they decide how to structure their businesses. That’s why it frustrates me to see marketing efforts by some firms in our industry that try to lift up a particular path to independence at the expense of others.

Advisers, and their clients, break away in growing numbers because they value full transparency, the fiduciary standard and conflict-free advice. True independence adheres to those principles. The way an adviser pursues those ideals doesn’t define true independence. Are you independent if you partner with an established RIA? Are you independent when you set up your own ADV, but use a platform provider to outsource some functions? Are you independent if you’re a W2 employee of an RIA?

The answer regarding all of these structures is, of course, "Yes, you are!"

Every one of these paths to independence is valid. And there’s no universally correct direction for every breakaway to take. What works for some may not be the right solution for others. The problem arises when firms in our industry emphatically state that there is only one “true” path to independence, even as they quietly place advisers in partnered independence with existing firms. All of this creates confusion for advisers who want to understand their options. It diminishes us as an industry.

We work in a fast-moving, competitive world. But there’s an ocean of difference between “competitive” and “zero-sum.” We don’t have to make someone else feel like a loser in order to win. Look at how many RIAs have thrived by identifying a niche and serving it to their highest ability. There’s more than enough opportunity to share, and no one wins when we muddy the waters over whose business is more “true” to an arbitrary ideal of independence.

Faced with so many options, the best thing advisers can do to cut through the noise is to educate themselves. No matter their destination, advisers need to understand what level of support they need and make sure their partners are up to the task. But whatever you decide, it pays to be suspicious of anyone who tells you there’s only one correct way to be an RIA. The tsunami waits for no one. What’s most important is that you ride the wave, regardless of how you choose to do so!

Ed Friedman is director of growth and business development at Summit Financial.