When industry experts guide financial advisors who are figuring out their next move, they sometimes reference insights from business leaders like Steve Jobs or Warren Buffett.
George Orwell offers financial advisors an astute lesson, as his novel Animal Farm encapsulates. Spoiler alert for those who skipped high school English classes: Fed up with broken promises and leadership that puts the farm before the animals, the farm animals, led by pigs, decide to “go independent” and create their own utopian farm.
But over time, the idealistic vision of the revolution is eroded by self-interest among the very pigs who spearheaded it. The pigs slowly behave more and more like their original human owners. Sadly, the story ends with the farm animals living on their own “independent” farm, indistinguishable from the old regime.
Over the past decade, our industry has seen a similar dynamic at play. Wealth management firms that were originally established to provide freedom and flexibility to financial advisors have increasingly inched towards shareholder-first platforms. Advisors now find themselves affiliated with firms resembling the wirehouses they ran away from.
Start With Founder Goals
Indeed, talk to any financial advisor who feels their business is shackled to a platform whose owners have divergent interests. The lament heard most frequently is, “If only I’d spotted the warning signs before I joined.”
What are the most common red flags? Perhaps one of the most important questions an advisor can ask senior executives during home office visits is, “Why does your platform exist in the first place?” If the answers focus on the firm’s success and/or put shareholders ahead of the advisor and client relationship, that should be a red flag. Advisors should be fiduciaries to their clients, and firms should view their advisors the same way they view their clients. My dad said it best when I joined him as an advisor: “Put your clients first, and success takes care of itself.”
Key Man Risk
Another significant red flag is when an enterprise exists to turn all its financial advisors into a replicable carbon copy — often modeled after an individual or founder whose own personal brand is espoused to be the ideal advisor persona. Advisors are special and unique. No two are the same, and that’s a good thing. That individual diversity holds for clients as well. Diversity in strategy, personality and world views means clients have choices. The choice to find an advisor that most closely resembles themselves and their ideals. Forcing all advisors into a firm-imposed cookie-cut mold is not in the clients' best interests; it's in the firm's best interest.
The allure and salesmanship of a specific senior leader or founder can be compelling. We all remember the wirehouse promises after 2008. Promises to be different, only to find ourselves jumping from frying pan to frying pan.
Here’s the reality: Any time a firm’s brand and strategy are built around a single individual, there is considerable risk of future instability.
This is a serious concern regardless of how renowned a senior executive is or how celebrated she is throughout the industry.
We must be different now. While leadership is extremely important, it’s not everything. Do your due diligence on the broader platform and firm philosophy. If the leadership wasn’t there, ask yourself if the firm is still where you’d want to be. A good rule of thumb is to ask to meet other advisors at the firm. Do they look and feel like the advisors you’d want to be affiliated with?
Culture of Accountability Versus Cult of Personality
Equally important, transitioning advisors must ensure that the enterprise they join forces with has a culture of accountability. Do the advisors have a voice?
The new hybrid and RIA firms are, in many ways, analogous to America's finding its independence. Political party preferences aside, America is special because of its founding principles and its collective citizens, not any one individual. Sure, there will always be larger-than-life personalities and great leaders who help carry the torch, but ultimately, the U.S. government serves the people… not the other way around. Our people and diverse cultures are what make America great.
Like an electorate holding its officials to account, the relationship between a financial advisor and their firm should never be top-down. Financial advisors are incumbent upon questioning and challenging leadership, and enterprise leadership needs to provide ample vehicles for advisors to do just that.
If it appears there is a cult of personality versus a culture of accountability at an enterprise, financial advisors would do well to look elsewhere for a new home for their business.
An Orwellian Warning
These days, independent advisors seem to focus exclusively on factors like payout, products and technology. Yes, these are important, as are a firm’s business model and resources.
But they cannot substitute for a well-developed, advisor-centric culture supported by a truly institutionalized bench of leaders who see their role as supporting advisors as entrepreneurs with ambitions.
Put differently; the entire industry suffers when wealth management enterprises celebrate their firm, founders, and leaders over advisors.
Alex Goss is Co-Founder and Co-CEO, at NewEdge Advisors and is also a Managing Partner at NewEdge Capital Group