Though the desire for independence among advisors remains strong, a growing number of advisors are moving back on the independence spectrum, say executives at some of the large broker-dealer firms.

“If you think about the industry, you have the employee side and then you have the independent side. And then you have the RIA side. And usually people sort of moved down that spectrum in one way. But it has been interesting to see some of those firms come back from having their own RIA or having their own broker-dealer to be part of an independent channel,” says Jodi Perry, president of Raymond James’ independent contractor division.

And Raymond James is not the only firm that has seen this apparent trend.

Rich Steinmeier, an LPL Financial managing director and divisional president of business development, says the firm’s analysis of advisor recruitment in the industry reflects the same shift.

“We went and investigated and looked at all the moves, and it actually surprised me, but 10% of advisors who were independent and moved in the last 12 months, moved to employee channels,” says Steinmeier.

Yet recruiters don’t necessarily agree that these moves constitute a trend.

St. Croix, Minn.-based recruiter Jon Henschen of Henschen & Associates says he has seen some reps move from independent channels to wirehouses, but he says that is “very much the exception.”

“Some reps just aren’t cut out for being entrepreneurs and they’d rather be taken care of,” says Henschen.

Jodie Papike, president of recruiting firm Cross-Search, says she has yet to see any clients moving from the independent broker-dealer channel to the employee model, though she does say some advisors are giving up their RIA status to come under a broker-dealer’s RIA.

Why advisors move back

Steinmeier says in the first six months of the year LPL saw a few advisors leave the firm because they wanted the support of an employee model and to move back from being their own small business owner. That, he says, prompted the firm to create the employee model affiliation for independent advisors. The move was announced in May.

“Maybe they didn’t have a transition plan and they were thinking about exiting the industry, and they didn’t have a succession plan. So that was one of the impetus that spurred us into considering building out this employee solution. We saw some of our advisors who left to go to an employee channel. And it really surprised us, because that’s generally a one-way street from employee into independent,” says Steinmeier.

“I do know reps that consider going back to [a] wirehouse. But it’s more situations where, say, it’s an older rep and he wants to retire soon, and he has a branch near him that could buy out his book,” says Henschen, talking about a generic example of a succession-related move to the employee channel.

The support and culture of an employee firm is what is causing some advisors who went independent to return to Edward Jones, says the firm’s head of recruitment Katherine Mauzy.

Katherine Mauzy

“Some of the folks that left our firm a while ago have come back to Edward Jones because they miss the culture,” says Mauzy. “They’re excited about coming back and having that culture that they miss. They’re excited about having the support that they miss.”

Perry says Raymond James has seen advisors move into its independent channel from smaller broker-dealers and RIAs.

“We’ve seen some small broker-dealers who have decided that they no longer want to be their own broker-dealer. We’ve had advisors from RIAs come over and decide that they’d rather be independent than actually have their own RIAs. And not to harp on the regulatory environment, but that’s been driving some of these,” says Perry.

The weight of regulation

Regulatory and compliance burdens are big reasons for advisor moves, says Papike.

“I think it is probably going to become more prevalent as the SEC and the individual states become more and more compliance heavy. I just feel like a lot of advisors go down that road of setting up their own RIA, and then for whatever reason — sometimes it’s business changes, sometimes it’s regulatory changes — they decide they want to offload that burden on the compliance side, the technology side,” says Papike.

Jeff Nash, a former LPL recruiter who is now CEO of consulting firm Bridgemark Strategies, agrees that sometimes advisors underestimate the work outside of advisory that becoming an RIA requires.

“What happens is with a lot of people who go to the RIA, they’re sold on how simple it is to become an RIA,” says Nash. “Once you become an RIA you realize it’s not quite that true. There’s more risk, there’s more time, there’s more stuff that you do, that becomes a distraction.”

Nash says, for instance, that spending an additional two to four hours a week on other tasks may not seem a lot, but that could be 5% to 10% of the advisor’s time. At that point, he says advisors could weigh the cost of tucking in under a larger RIA.

Jodie Papike

“So, we’re seeing definitely an increasing number of people who are looking to then give up their RIA to become a tuck-in -- still getting the benefits, but not having their own RIA,” says Nash.

But there could be other factors motivating advisors to move back to the employee channel, including financial considerations. Upfront transition money, Henschen says, is a big reason advisors move away from independence, and costs could be another.

“If it’s a rep doing a lot of separately managed account business, because of the volume of business firms like Morgan Stanley [do], their cost for SMAs is [around] 35 basis points. About the best pricing in the independent channel would be about 65 basis points or more — as much as 100 basis points,” says Henschen.