“Evolving” is a word often used to describe the wealth management industry, particularly the independent space. While many consider evolution always to be a good thing, it is not a linear, one-directional or objective improvement – in fact, for many firms, some changes prove detrimental.
For example, today’s independent landscape has seen private equity investors establish a robust foothold. For some, it’s a net positive (resources, efficiencies or scale). For others, it creates misalignments and conflicting priorities. One thing is clear: Those organizations with the foresight and flexibility to adapt to the industry’s fluidity will be the most successful.
For everything that must change for firms to remain competitive, there are intangibles – such as core values and stated commitments – that should remain fixed. When some organizations compromise on promises made in the name of expedience, doing so can alter the very idea of what independence means.
As in all ecosystems, there are myriad elements at work shaping the environment, some of which are beyond the control of individual firms. Currently, three forces stand out:
Technology and AI: These have become true equalizers, enabling independent firms of all sizes to deliver scale and an enhanced client experience without compromising flexibility.
Cultural transformation: Advisors are increasingly prioritizing purpose, belonging and authenticity through teaming and partnership. They are also seeking greater work/life balance.
Advisors are increasingly prioritizing purpose, belonging and authenticity through teaming and partnership.
Changing advisor demographics: The advisor population is evolving across generations and career stages, bringing new expectations around succession, technology adoption, flexibility and long-term growth.
These and other catalysts are transforming how independent firms operate and, importantly, how they are perceived by the financial professionals who work within them.
Independence Is Not The Destination – It’s The Journey
Historically, independence was gauged by how you were paid: 1099 versus W-2. In today’s environment, this is not the delineator it used to be. I’m not sure it matters anymore. At Cambridge, we see a notable preference among younger generations, particularly Generation Z and young millennials, for being paid on a W-2 basis.
Competition for top talent is fierce, so it’s essential to meet these younger professionals where they are, particularly when working toward future proofing your organization. Still, the 1099 model has staying power, and it’s not going away anytime soon. Numerous young people are entering the industry through that model, achieving success, often as part of an ensemble.
Independence: Divergent Paths That Lead Toward One Endpoint
The previous generation’s 1099 independent financial advisor, one who endured steep economic hardships and sacrifices to build their solo practice, is more the exception than the rule today. The typical entrepreneurial advisor of today does not want to assume the risk or austerity associated with that route. And many do not have the financial wherewithal to consider embarking on that path anyway. With growth trends and rising valuations, most advisors can’t afford to buy in.
It’s difficult, but not impossible. Here’s where joining the right network proves valuable. Sometimes, partnering with a firm that provides tangible services in addition to financial support can help overcome that hurdle. Having flexibility and access to multi-channel/multi-business options delivers the autonomy these advisors seek: more control over how to work with their clients and the operating model they employ. Among Next Gen advisors, such autonomy trumps the “how I’m paid,” or even the “who owns the clients?” conversation.
Having flexibility and access to multi-channel/multi-business options delivers the autonomy these advisors seek.
At Cambridge, roughly 57% of our advisors are classified as solo practitioners. Yet, new advisors are increasingly drawn to a team-based approach – they want a compelling value proposition and a structure that supports it. They’re asking: “Can you help me grow faster?” “What will you bring to the table?” They’re looking for a partner that has evolved to meet their needs – independence reimagined for a new generation with different priorities.
Talent Acquisition And Training Failures Have Come Back To Haunt Us
However, there’s more than a cultural realignment impacting our industry. Acquiring clients is more challenging than it was before, despite the growing demand for complex financial planning services. As an industry, we haven’t done a great job of setting new advisors up for success within a new paradigm. Building a business in a dynamic industry requires acumen. Growing and scaling that business requires a different skillset.
The generational wealth transfer is gaining momentum while fewer people are entering the industry than are retiring. Advisors will need to build relationships and serve twice as many clients. Unprepared advisors will hit capacity quickly. As an industry, we can improve how we promote opportunities and options.
Advisors who want to remain 100% owners of their business and continue to add partners must learn how to scale and build larger businesses. They need to learn the same things we learned at Cambridge as we grew from a $7 million company to a $2 billion company. Does that mean hiring a salaried CEO? Maybe. The person who has built a successful business has only had to do certain types of things, and if they’re going to scale, they need specialists.
Complexity defines today’s independent broker-dealer, hybrid RIA and independent RIA landscape. Enterprises must serve a broad mix of advisor types and entities across multiple affiliation structures, while maintaining a clear and compelling value proposition for each model.
Independence is a choice throughout the industry hierarchy. If you are an advisor, you want to be in a place that respects your ability to do what is best for your clients and offers the flexibility to do so. Choice and autonomy are the real currency in the independent space.
At the intersection of collaboration and autonomy lies balanced independence.
At the intersection of collaboration and autonomy lies balanced independence. It’s what bridges the desire for autonomy with the need for support – a partnership between advisor and home office that’s grounded in a culture that respects individuality, delivers flexibility and drives success.
Transitioning Toward A New Model
Independence is about the individual. As we move forward, spurred on by AI-driven efficiencies and innovations, we must proactively recommit to the human side of independence. There’s no single definition of independence. It is incumbent upon industry leaders and regulators to ensure that we can embrace independence in all forms and support the dedicated professionals who deserve flexibility, choice and service from the firms that support them.
Amy Webber is the CEO and Co-Chairman of Cambridge Investment Research.
