The Modern Advisor

The Rise of the Advisor-Entrepreneur

By :
Runik Mehrotra
Advisors are taking control of their practices and moving away from wirehouses. We're seeing the rise of a new type of advisor, the Advisor-Entrepreneur.

The Movement

The rise of technology and global connectedness has uprooted decades-old infrastructure in the wealth management industry. Just 20 years ago, virtually all financial advice was delivered by advisors at large institutions, wirehouses, and broker-dealers. Today, financial advisors and planners are declaring independence. 

Independent advisory assets have grown every year, and the tools and people servicing this segment have exploded. More advisors are following every month, getting a better deal for themselves and their clients. They’ve realized that becoming an independent advisor allows them to deliver the best financial advice, especially in uncertain times.

Old barriers to independence

Until recently, the cost of infrastructure and support costs inhibited most financial advisors from operating outside of wirehouses and broker-dealers. While advisors may have hated the payout matrix of large institutional employers like Merrill Lynch and Morgan Stanley, there were few alternatives for advisors.

A wirehouse job provides stability, but often, convenience is its real appeal. If you’re part of a well-established firm, you likely have an in-house compliance team that can recite Reg BI requirements backward and forwards. You have an on-site IT team that keeps your hardware humming and your software up-to-date. 

New tools, new options

Today, technology has brought down the barriers that once stood between financial advisors and independence. There are innumerable consultants who can advise on compliance on retainer or on an hourly basis. The same is true for IT consulting, of course, and smaller one- or two-person shops can bring on other types of consultants as needed.

Setting up an LLC may require some legal assistance, but today it’s easier than it’s ever been. Businesses like Foreside (formerly NCS Regulatory Compliance) and RIA in a Box make once insurmountable challenges like compliance and SEC registration simpler: What once required a team of experts can now be easily handled by consultants or software. 

More ways to run a business 

Yesterday’s advisors didn’t have a fraction of the resources that today’s financial professionals do. The mechanics of the classic financial advisor originated in the pre-digital era.  Advisors could pick actively managed mutual funds and third-party equity managers, but tools and resources were limited. One firm operated pretty much the same as another firm; the time, effort, and stress of independence wouldn’t let advisors offer better service or deliver better results. 

Moreover, wirehouses and similar large firms were typically the best sources of inbound client leads — the world was less connected, so discovering potential clients required resources small shops were unlikely to possess. For decades, the incentives of independence were too small to be worth the hassle. 

The rise of the modern advisor   

Today, independent financial advisors have easy and affordable access to all the tools that they need. There are dozens of options available, and newly independent financial advisors are bound to receive a pleasant surprise. Many new tools don’t just match the capabilities of legacy systems, they far exceed them. Proprietary systems are rarely updated and generally finicky, but they grow so familiar that institutional inertia precludes change. If the lead generation system at your wirehouse is full of junk data or its client portal is sluggish, you’ll spend too much time managing systems when you should be managing money. With an independent RIA, everything changes.

Financial advisors who go independent will find themselves working with cutting-edge technology: artificial intelligence, streamlined interfaces, cloud infrastructure, and more. Cloud-based CRMs make client tracking simpler, and accelerates the processes of lead generation and conversion. Artificial intelligence can automate many rebalancing tasks and allows greater portfolio personalization — With new financial planning tools, complete customization is no longer a nice-to-have. Now, it’s essential. Simply put, independent RIAs can work faster, work smarter, and work better.

The best financial advisors have had enough. They want more time and better connection with clients instead of office politics and management-imposed quotas. They want the freedom and flexibility afforded by new technologies. And they want to receive their fair portion of the value they create. 

Advisors are exiting their old firms in droves. Even the oldest and most traditional wirehouses recognize that change has arrived: Major firms are eliminating “penalty box” production barriers to keep their advisors from leaving en masse. Some financial advisors will remain with onboard at the giant firms, but the true innovators, the trailblazers of personal finance, are going independent. 

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