Wirehouse advisor movers are still predominantly switching to rival wirehouses, but the hybrid and independent registered investment advisor space is ripe for increasing its poach rate, according to a panel at Echelon’s Deals and Dealmakers Summit in Laguna Niguel, Calif.
This year, Echelon estimates that 203 wirehouse advisors will move to an independent RIA model, with another 305 moving to hybrid RIAs. That’s dwarfed by the 938 advisors likely to switch to independent broker/dealers and the 1,480 expected to go wirehouse-to-wirehouse, according to Echelon data shared during the panel.
But Echelon Senior Vice President Brett Mulder, who moderated the session, said the wirehouse space is becoming more attractive as a potential hunting ground for RIAs despite some cultural differences and more complex deal workouts.
“Whereas the RIA acquisition landscape is so competitive in terms of the number of buyers competing for those assets, there are a huge amount of advisors in the wirehouse channel, [with] many of them looking for independence,” Mulder said. “There have been some changes in deal structure that allow them to make these deals more enticing in terms of them moving to independent channels.”
Mulder said Echelon has assisted on two wirehouse-to-RIA deals recently, with teams of over $1 billion, including a $1.2 billion team from Merrill Lynch that moved to RIA NewEdge Advisors. In addition, Sanctuary Wealth showed another use case earlier in August by snagging a $1.2 billion team from UBS.
Jamie Price, the CEO of independent broker/dealer Osaic, also said he sees more wirehouse advisors switching to an RIA model as they seek independence. That trend is partly why he said Osaic recently agreed to acquire the $13.5 billion fee-only registered investment advisor CW Advisors.
“CW was an opportunity at the right scale to build off of, and we thought at the right price point and with the right management team,” Price said.
He added that most of the growth in that channel will come from Osaic’s 1099 affiliate base. But he also sees a shift happening from the past, when wirehouse advisors only moved to fee-only or fee-based practices because they wanted to run their own businesses.
“They weren’t leveraging any of the services any longer of syndicated investment banking,” Price said. “They found themselves not needing half of the things that they were not getting paid for.”
That has changed as wealth management firms have built more capabilities for those advisors for high-net-worth and ultra-high-net-worth clients, such as credit lending, asset management, and services like taxes and trust.
“We’re seeing a bifurcation now,” he said. “They either want to go out and start their own business [as in the past], or they don’t want to be an entrepreneur. They want to plug into something and not become an accidental CEO.”
Jeffrey Bischoff, founder of executive recruiting firm Old Greenwich Consultants, said that traditionally, only the top wirehouse advisors who wanted a higher payout considered the RIA space. Today, he believes the interest has expanded as advisors see monetary and operational benefits.
“Everybody’s doing it, everybody’s looking at it,” he said. “A lot of them are dependent on the broker/dealer at the wirehouse, and they’re dependent on the brand and what have you—but it really is a one-way street,” Bischoff said
Part of what is easing the way for the move is a recent tactic by lawyers and dealmakers to have advisors monetize “personal goodwill” with clients as allowed by the IRS, he explained. If an advisor’s clients agree to follow them to a new RIA setup, even if they didn’t “own” the client at their prior firm, they can claim “personal goodwill.” That makes the related payout taxable at a long-term capital gain rate, instead of a higher ordinary income rate.
Bischoff added on the sidelines of the conference that the tactic was made even more enticing by being immediate, rather than something advisors have to wait for one year and a day before getting their payout.
“The advisor has been dreaming of this, that they could get paid in long-term cap gains—it’s the holy grail, and now it’s here,” Bischoff said, adding that the move is still in the “early innings,” and warned that audits may follow.
The panel acknowledged that the wirehouse move presents a greater hurdle in assessing an advisor’s value, ensuring smooth client transition, and simply breaking from familiarity.
“I think it’s comfort,” Bischoff said. “I think it’s products that they rely on with the broker/dealer, and they like having the turnkey (setup).”
But Cliff Colbert, a vice president at Goldman Sachs, said that advisors’ recent ability to access wealth-adjacent services via the independent channel will change the recruiting game.
“Never before have the institutional tools that were formerly reserved for the wirehouse advisor been more available to the independent channel,” said Colbert, who works with advisors to use Goldman’s RIA banking and custody services. “I think that’s in addition to branding opportunities and validation of the independent space as it continues to grow, giving wirehouse advisors the confidence to move.”
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