More Advisers Hope to Switch to Independent RIA Model

As the number of independent registered investment advisers (RIAs) continues to rise, a recent survey studied the motives behind why financial advisers are seeking to strike it out on their own.  

The survey by TD Ameritrade found that out of the 134 brokers surveyed in September 2017, nearly half of respondents say their interest in breaking away mainly concerns the future state of the broker/dealer industry. Forty-six percent believe the brokerage industry is “on the way to significant deterioration.” On what the major challenges in the industry are, 85% pointed to shifting regulations and the uncertain regulatory environment as the principal challenge. In addition, 54% cite changing compensation structures, and 46% say damaged public trust and reputation.

Also a factor on the decision to stay or go is the Department of Labor (DOL) fiduciary rule, with 55% of respondents waiting to see the fuller impact of the rule before deciding whether to make the move to independence. On the other side of the spectrum, 26% are considering breaking away to independence sooner, while 14% report the rule has had no impact on their decision.

Other reasons for leaving include the feeling of greater independence in decisionmaking, as 34% cited this flexibility as a motive. The survey shows that these advisers—or “breakaways”—widely believe independence may lead to more income and better control over their careers. Furthermore, speaking with current independent RIAs who have previously left a firm to practice on their own is a strong motivator for considering independence, according to the survey. Fifty-five percent of respondents have interacted with others who have made the switch to independence, and 57% developed more motivation to leave upon hearing advice.  

However, while some seek independence to grow income or gain ownership, others hope the switch keeps them away from company culture. The survey reported many respondents feel strong dissatisfaction with their current firm’s culture. Fifty-five percent were not satisfied with corporate culture, while 54% were unhappy with leadership/strategic direction. Another 54% were displeased with career opportunities, and 51% were not happy about compensation. Out of all those surveyed, only 12% were satisfied with their current employer.

While the prospect of leaving a firm may be scary to some, most respondents surveyed believe they will have the necessary support once independent. Thirty-eight percent report they are extremely confident in receiving guidance as an independent RIA, and 40% say they are somewhat confident. Seventy-percent hope former colleagues who have made the switch before can act as support guides. Other sources of support cited were events and conferences (11%), trade journals (9%), thought leadership/blogs/newsletters (7%), and social media (2%).

More information on the survey can be found here.