Why Advisors Leave the Major Firms to Become Independent


As a general rule, most Registered Investment Advisors (RIAs) start out working for a major brokerage firm (commonly referred to as “wirehouses”) before leaving to establish independence.  There are a number of reasons, but here are the most common ones:

•Service levels for the advisors at the wirehouses have deteriorated drastically, from cutbacks in the number client service associates (CSAs) in local offices to severe pruning of back-office support and operational staff who act as informational resources to advisors.  These cutbacks increased dramatically in the aftermath of the housing bubble burst in 2008, when most wirehouses teetered on the verge of bankruptcy.

•Managing thousands (or tens of thousands) of representatives has always been a challenge for wirehouse management.  To reduce liability, wirehouse management will generally say “no” to any initiative that is not pre-approved.  As a result, wirehouse representatives are prevented from offering their clients services that are common in the RIA field.  Examples of this include advising clients on assets not held at the firm, advising clients on investments not offered by the firm and providing seminars or public statements that have not been scripted by the firm.

•Wirehouses only offer their clients investments that allow them to gather fees.  For this reason, many of the big firms will not allow their representatives to offer “no load” or load-waived funds.  Typically, unless the entire account is managed under a fee wrap, clients are charged commissions to buy and sell stocks and bonds and must pay a front-end load via A share mutual funds or be subject to higher internal expenses via C share mutual funds.  In the end it’s typically more expensive to be a client of a wirehouse advisor because not only are you paying your advisor, you’re also paying the firm he or she works for.

Arie J. Korving, CFP Co-founder, Korving & Company 3


Arie J. Korving, a CERTIFIED FINANCIAL PLANNER™ professional, has been delivering customized wealth management solutions to his clients for more than three decades. Prior to co-founding Korving & Company, he was First Vice President with UBS Wealth Management and held management positions with General Electric.

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