Sirianni: Wirehouse RIAs: The beginning of the end, or a new beginning?
AdvisorHub’s article about UBS creating a business channel for RIAs, following a similar move by Wells Fargo Advisors, has stirred up a hornet’s nest. Everyone is asking: Can a Wirehouse RIA work?
Supporters say it makes sense for the firms to try to staunch the outflows to the independent space that have been decimating the wirehouses by agreeing to keep them in-house.
Competitors in the independent space, once they finish with their tiresome “I told you sos,” say it’s unlikely that behemoths like Wells or UBS can make it work.
The truth is, the wires could make it work, but it will take some real heavy lifting.
The good news for wires is that they are in the early stages and have time to construct their new channels with the right structural and cultural support.
Wires have only themselves to blame for being late to the party. As indie firms multiplied—often under the leadership of former wirehouse managers—the traditional firms ignored them. Refusing to engage in a character debate, they dismissed the indies as gadflies beneath their contempt. Instead of rising to the challenges of independent competitors and establishing innovative approaches to end clients, wires sat on their hands and allowed the collective voice of the indie space to own the narrative.
Wire-hired consultants reinforced the ignorance, telling firms the indie phenomenon didn’t matter. They added up some columns and talked about acceptable dilution and tired old solutions such as just raising upfront payments to keep the sales machines intact. A check seemed an acceptable solution because it was cheaper than developing managers. And the result was familiar: A bunch of mercenaries moved in an enormous prisoner exchange that did as much to damage wire culture as did the ham-handed firing of managers.
The wires have for too long been penny wise and pound foolish. You can’t run a culture centric sales organization on a quarterly basis. Some decisions have to be made for the long haul. Culture is not derived from the next quarterly sales push. Nor is it enhanced by convoluted legal traps designed to lock down advisor books in perpetuity.
With half of the remaining wires now tentatively deciding, “if you can’t beat them join them”, it’s clear that the second battle between indies and Wires has been won by the indies. Indies won the culture battle years ago, but these new wire RIAs are a tacit admission that indies have won the battle for legitimacy as well.The war, though, is far from over.
Can the huge financial strength of the wirehouses help them run over their RIA competitors? Only if they absorb the lessons of their earlier defeats.
It’s not enough to ape the constructions of an RIA without addressing the core issues behind the indies’ success: Their focus on advisor-centrism and encouragement of autonomy; their push to wide-open investment platforms benefiting advisors and clients; their working toward a flexible compliance culture that is not tied to the lowest common denominator; their encouragement of advisors by giving them a bigger say in marketing, budgeting and succession planning.
Wires can learn from the firms that have been eating their lunch, but it will mean a major change in the way they operate and plan. If they don’t adjust their cultural and structural frameworks, they will lose. A wire that has an RIA in name only will fall flat. A wire RIA energized by the best elements of the Independent movement and fueled by enormous resources, will be hard to beat.