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Most Breakaway Advisors Enjoying Freedom and Higher Revenue

By Rita Raagas De Ramos March 20, 2018

Most advisors who left brokerage firms to set up their own shop or join an RIA network are happier, enjoying their freedom and reporting higher revenues, according to a survey commissioned by Charles Schwab.

The survey of 67 independent advisors was conducted by Koski Research, with the respondents drawn from Schwab’s client base. The responses were gathered from January 17 to February 5, 2018.

Nearly all, or 93%, of the advisors said they are happy now that they are independent, with many of them recommending that other broker-dealer advisors follow suit.

Largely responsible for their happiness –- according to the survey -– is achieving what they set out to do when they decided to go independent: the freedom to do what’s best for their clients, providing more personalized service, not having to report to anyone, building a business independently and creating their own brand.

“If you look at the net asset flows of Schwab last year, the RIA side far exceeded the net asset flows of all wirehouses combined.”
Shirl Penney
Dynasty Financial Partners

Jeff Farrar, New York-based chief operating officer at Procyon Partners, says doing what’s best for their clients was among the strongest motivations for him and his team to go independent.

Farrar and four other advisors left UBS in June to launch Procyon, which is part of the RIA network of Dynasty Financial Partners. UBS filed a TRO motion against the former advisors, led by Phil Fiore. A U.S. district court judge ruled against UBS, enabling Procyon to proceed with business as usual. The arbitration case filed by UBS against Procyon remains pending.

Shirl Penney, president and CEO of New York-based Dynasty, says clients are becoming “more aware” of the independent advisor movement and they “understand the benefits” of this model.

Clients like entrusting their assets to advisors who don’t belong to firms that both make and sell investment products, Penney says. The better understanding of the delineation between manufacturing and distributing investments “has led to this acceleration of the independent movement,” he adds.

Advisors believe the most important benefits of the independent model to clients include the fiduciary focus, lower fees or transaction costs and more personalized service, according to the Schwab survey. And, for the most part, clients remain loyal to breakaway advisors, who retain an average of 87% of their clients from their previous firms, FAs tell the RIA custody provider. Around 13% of the advisors who responded say they were able to retain 100% of their clients.

Procyon’s Farrar says his team was able to retain “several billion” dollars of their client assets from UBS. Dynasty previously said the Procyon team oversaw $8 billion in institutional assets and more than $400 million in private wealth assets as part of the FDG Group at UBS.

The majority of the advisors surveyed say their clients were “immediately on board” with their move to independence. And they are now able to build better and longer-term relationships with their clients.

Around 55% of the advisors surveyed say the freedom, autonomy, flexibility and control that comes with being an independent advisor is the primary benefit of the move for them.

Phil Shaffer, who left Morgan Stanley after 24 years, says he wanted to set up his own shop because he wanted an “ownership culture,” wherein equity in the firm is shared in a “meaningful” way.

Shaffer, CEO of Columbus, Ohio-based Halite Partners, co-founded Graystone Consulting at Morgan Stanley. He says he was able to take with him $1 billion in client assets –- with up to $3 billion more in transit.

Shaffer credits the Protocol for Broker Recruiting for the relative ease with which he set up his new practice. He left the wirehouse before it exited the broker protocol in November. He expects advisors now leaving Morgan Stanley will either have to jump through extra hoops or, in a worst-case scenario, be slapped with lawsuits and temporary restraining orders. Indeed, Morgan Stanley has resorted to filing TRO motions against select former advisors, which have been granted in most known cases.

Shirl Penney

Jon Beatty, head of sales and relationship management at Schwab’s RIA-support unit, says client retention remains possible even with firms leaving the broker protocol –- provided advisors respect their contractual obligations and firms respect the client-advisor relationship.

The combination of the retention of client assets from previous firms and new client referrals have contributed to the growth of independent advisors’ practices. Around 70% of the advisors surveyed say their revenues have increased since going independent.

Dynasty’s Penney says the net asset flows of independent advisors show no signs of slowing down, referring to data gathered by Schwab.

“If you look at the net asset flows of Schwab last year, the RIA side far exceeded the NAFs of all wirehouses combined,” says Penney. He attributes this to “clients choosing independent advisors” and “the very-large scale advisors” going independent, such as the team that left UBS to launch Procyon.

Schwab’s RIA-custody group gathered more than $100 billion in net new assets in 2017, according to a spokesman for the firm. Schwab Advisor Services serves around 7,500 advisors.