Independent Life Not for Everyone, Some Advisors Find

Every year, many wirehouse advisors leave their firms to join independent brokerages or registered investment advisors. Yet, while life on the independent side has its perks, it’s not for everybody.

In fact, a few advisors have tried the solo life, only to find that they enjoy working for a firm as an employee and the many benefits that such a career track has to offer.

“I’m able to do everything I was able to do before—and more,” says Jonathan Price, an advisor in the Wellesley, Mass., branch of Morgan Stanley Smith Barney. “It takes all of the burdens of running a business off my shoulders and allows me to focus on meeting my clients’ goals and objectives.”

To be sure, it’s not as common for advisors to leave the independent world as it is for them to join it. Indeed, representatives of most of the major wirehouses and national brokerage firms were hard-pressed to find examples of it occurring within their ranks. Nonetheless, it is happening, at least on a small scale at firms such as Morgan Stanley Smith Barney, Edward Jones and Merrill Lynch Wealth Management. Indeed, Sallie L. Krawcheck, president of Global Wealth and Investment Management for Bank of America, which owns Merrill, said recently at an industry conference that her firm hired 25 advisors from the independent channel last year.

Advisors who have left the independent channel cite many reasons for doing so, including the amount of time and money it took to run their business the way they wanted. Technology constraints and regulatory burdens are other major reasons some advisors prefer to be an employee instead of a business owner.

Take John Calandro III, for example. He had his own RIA and independent brokerage for many years before deciding to join Merrill Lynch Wealth Management as an employee in the Dallas office two years ago.

“I think financially it’s a better package for me doing it the way I am. My clients get lower costs and more strategies, more expertise, more research and more technology,” he says.

Technology was a big reason he made the switch. At Merrill, everything is electronic and integrated. Calandro doesn’t even have a file cabinet. But when Calandro was his own boss, he had to choose his own software and patch it together. He also had to bring in outsiders for server upkeep, to train his staff and to perform other technology-related functions. While he wanted a full-time tech person, he struggled to afford it, even though his practice brought in $2 million in revenue.

As an independent, it took his staff five to eight hours to prepare for quarterly account reviews. Now his staff can do the same work in 90 minutes, thanks to the technology, which Calandro says has twice as much powerful content and options for viewing performance.

Calandro also likes the fact that he can get lines of credit for clients at significantly lower rates than he could as an independent, and that his clients can participate in initial public offerings, whereas before he had no access to a syndicate. He’s also been able to significantly boost his 401(k) business.

One argument for going to the independent channel is the higher payout, which for RIAs can be close to 100 percent. However, the costs of running a business—which include rent, salaries, benefits, health care, employment insurance, procuring and maintaining technology, and legal and accounting fees—can quickly eat into profits. On top of that, advisors who have left the independent model say they spent upwards of 30 percent of their time focused on business-related matters, leaving them less time to spend on their true passion—working with clients.

That’s what Dray Sterling discovered during his nine years working for two different independent brokerages. Sterling, who joined Edward Jones in 2009, says he made less as a small business owner than he does now—despite payouts in the 90 percent to 95 percent range—because of all the expenses. On top of that, the enormous amount of time he spent focused on business issues ate into his time with clients.

“I spent so much time doing research and due diligence about products and services from fund companies, insurance carriers, retirement plan record keepers, etc., that I was simply spending too much time preparing to be a good financial advisor to my clients which, of course, took away from the time I was actually providing advice and service to my clients,” he says.

For Price of Morgan Stanley Smith Barney, the burdens of running a business—and the loneliness of being a solo practitioner—prompted him to consider leaving the independent channel where he’d worked for two decades.

In making his decision, Price looked at several factors. The first was whether the move would make him happier; he determined it would. “I was spending less and less time working with my clients and more and more time running a business, which made me very unhappy,” he says. On top of that, he didn’t like being the only advisor in the office—he wanted camaraderie, which his current position offers him. Earlier this year, for example, he was thinking of implementing a new investment strategy and was able to discuss the pros and cons with another Morgan Stanley Smith Barney advisor in his office.

Next, Price looked at whether he could have access to more products and services than he did as an independent, which he does. The research alone, he says, has made a huge difference.

Lastly, he looked at the economics. Despite higher payouts, Price found that the rising costs of running a business, as well as the headaches, were prohibitive. He came to the conclusion that, at Morgan Stanley Smith Barney, he’d basically be in the same place but he wouldn’t have to do all the things he hated to do.

Of course, there are tradeoffs such as having to fill out expense reports, being accountable to higher management and having to follow rules that aren’t of your own making. Nonetheless, Price says he hasn’t found the added rules cumbersome or annoying. “I don’t feel stifled.”