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Setting the Scene

In 2020, RIAs learned that independence comes with a price. Though free to choose their own technology platforms and turnkey asset management solutions, they’re still at the mercy of their custodian. Multiple M&A moves in the independent space are causing disruption as well.

Will this lead to a reversal and send FAs flocking back to the likes of Morgan Stanley or Merrill Lynch? It’s unlikely, but Raymond James, LPL, and Ameriprise will certainly benefit. Their combined recruiting efforts were up 42% in 2019. Expect that growth to continue going forward.

Virtual Advisory Firms are on the Rise

Covid-19 has created a need for wealth management firms to offer virtual and remote client experiences. This is another area where independent firms are able to differentiate, while more restricted advisors at the wirehouses are limited by a compliance approval process.

The 2020 pandemic didn’t birth the online advisory movement. It was the catalyst to take it to the next level. Digital platforms continually consume market share in the wealth management space. Virtual advisory firms are the industry’s logical answer to that threat. If you’re looking for your next opportunity, focus on your technological savvy and how you might be prepared to handle client relationships virtually in a post-COVID industry.

RIAs are Concerned about Client Relationships

Digital transformation in wealth management has made it simpler for RIAs to gain credibility and compete with the bigger players in the space. Unfortunately, there’s also a growing concern with discount brokerage offerings and the risk they pose to client relationships.

Vanguard has a massive retail platform and marketing campaigns targeted direct to consumers. This scenario, combined with the ever-present threat of robo advisors and digital platforms, has caused a number of independents to enhance their branding and marketing efforts to compete.

Advisors are Focusing on Long-Term Value

Where once advisors were attracted to BD recruiting bonuses and short-term profitability, a key financial advisor recruiting trend in 2020 has been to build more long-term value, particularly as a business enterprise. Sustainability, client retention, and succession plans are key sellers for financial advisor recruiters.

With M&As for RIAs at an all-time high, independence is looking more profitable as an exit strategy for wirehouse advisors. Concerned about the move to salary-bonus compensation models, they are viewing independence as a way to build value for potential acquisition.

Client Expectations have Changed

Increased financial literacy and an industry emphasis on the importance of the fiduciary relationship have caused a shift in client expectations. They’re less concerned about brand name recognition and more focused on personal services from their advisor.

Like many of the trends we’re seeing in 2020, this favors a move toward independence. RIAs and IBD registered reps have more freedom to differentiate with personal service offerings. They’re also not obligated to sell commission products to their clients.

Software Vendors are Driving Advisor Movement

TD Ameritrade grew rapidly in the past decade, because they offered an open platform (Veo One) where RIAs could choose different software applications to manage their practice and interact with clients. TDA was a pioneer of API integration between software vendors.

Fast-forward to 2020. Broker dealers, discount brokerage houses, and IBDs are using API technology to bundle software offerings. This process has been helped along by M&As in the fintech space. Software is now a key variable in FA custodial decisions.

This is a trend worth watching in 2021 as well. As competition in the fintech space intensifies, the pressure is mounting for direct client acquisition. Some vendors are already doing it. Does this endanger the advisor/client relationship? Expect the topic to come up next year.

Redefining the Hybrid Advisory Practice

As a growing number of advisors migrate to the independent space, it’s safe to assume that we’ll see more hybrid advisory practices as well. The term has historically been used to describe dual-registered wealth management firms, part RIA and part registered rep.

Add a third category—many advisory firms are now using robo-advisors for smaller clients and TAMPs for HNW and UHNW. They’re still RIAs, but the automated component makes them a different type of hybrid. These firms are tech-enabled and growing fast.

Dual registration is common for advisors who want to keep annuity commissions when coming out of the wirehouse world. Adding a robo component to that facilitates faster growth and creates more opportunities for commissionable sales.

Final Thoughts

This is the direction our industry is moving in. Trends in wealth management are being dictated by technology. Independence is important and good service models help retain clients, but it’s the tech that drives growth. We’ll continue to keep an eye on it for you.

If you’re looking for your next opportunity, contact Bridgemark Strategies today. Whether you’re changing broker-dealers, starting or joining an RIA, or looking for M&A opportunities, we can leverage our vast network and experience to help you discover and vet new firms so you can make the best choice for your needs.

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