Many financial advisors who are the sole planning practitioners in their offices are pushing back against the industry’s prevailing momentum toward consolidation — and winning.
The increasingly massive giants of wealth management enjoy the benefits of scale, due to the commodification of investment management, customer demand for a one-stop shop with a full menu of financial services and the rush of private equity capital that is financing a continuing flow of M&A rollups.
But solo advisors represent a constant of the planning profession, and the binoculars of the biggest firms with trillions of dollars in client assets may fail to spot some customers picked up by the microscopes of advisors focusing on their specific needs. In other words, the real fragmentation between big and small wealth management firms provides opportunities to solo advisors to build successful businesses.
An additional misconception stems from the notion that the sole practitioners are completely on their own. In fact, they often receive a range of support services from technology vendors, custodians, brokerages or registered investment advisory firms. They also employ administrative or relationship support staff and connect with other advisors through professional organizations or other types of collaborative networks. And they’re thriving, advisor-owned small businesses.
“It’s not work, it’s really fun. I love it. When my phone rings, when I see who it is, I always want to answer it. I never want it to go to voicemail,” said Jeannie Jackson, the founder of Chaska, Minnesota-based Eagle Creek Financial Advisors. “We know who we work best with and who works best with us, and we don’t try to put a square into a circle or vice versa.”
Jackson’s advisory firm has one other employee in Chief Operating Officer Crystal Hatteberg, and she’s aligned with New York-based independent branch Affiliated Advisors and major wealth management firm Osaic as her brokerage and RIA. Another solo advisor, Autumn Knutson, the founder of Jenks, Oklahoma-based RIA firm Styled Wealth, operates her fee-only practice without any brokerage or RIA affiliation or other staff members but “with a lot of intention, a lot of candor and a lot of grace with myself,” she said. At a growth rate of two clients per month in her first 15 months bringing on new customers to the firm, she said she’s “very much at capacity” and acknowledged that going solo is not for everyone.
“It’s helpful for people to know what they’re great at and also what they want to do — you can be great at something but also not want to do it anymore,” Knutson said. “You can get really clear with your messaging. It helps the right people come to you. People are really looking for great fits at the end of the day.”
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Solo advisors in a consolidating era
Amid the highs in registrations with the Securities and Exchange Commission, assets under management and employees across RIAs, they remain an “industry of small businesses” in terms of their footprint, according to the latest yearly snapshot report by Investment Adviser Association, an industry trade group, and COMPLY, a compliance firm. Across the record 15,396 SEC-registered RIAs, the median firm has one office, 67 individual client accounts, $403.5 million in AUM and eight employees. Out of the separate group of more than 17,000 state-registered RIAs with less than $100 million in AUM, 83% have two or fewer employees, annual statistics from the North American Securities Administrators Association showed.
Advisors who are the sole practitioner among an advisory firm’s employees comprise a substantial share of RIAs, and the version of solos that have support staff can sometimes be more productive than teams with two or more planners.
A “1+2 triangle” structure of one advisor with two support staff members represented the most productive setup among more than 600 survey participants in the annual “Financial Planner Productivity Study,” which was released last month by planning entrepreneur and writer Michael Kitces and Kitces Research co-authors Mark Tenenbaum, Dan Inveen and Tim Mulligan. The supported solos generate $1.2 million in annual revenue per lead advisor — more than six times as much as an unsupported solo and about two times as much as the teams with two or more lead planners.
“Advisors who do not hire staff support appear to ‘cap out’ at barely one-third of what they can achieve with a support team,” the authors of the report wrote. “More broadly, supported solos actually mirror productivity teams with silo and ensemble structures more closely than they do unsupported solos!”
Kitces has been writing and speaking for years about the fact that the advantages of scale that drive consolidation do not render the solo advisor obsolete. In a 2018 post for his “Nerd’s Eye View” blog shared with Financial Planning, Kitces looked back at how wrong an industry consultant’s 1999 white paper had been in spreading the idea that solo advisors would soon be extinct.
“The reality is that the death of the solo advisor has been forecasted for nearly two decades, and, in the meantime, solo advisors have actually become more profitable than ever. Is the prevailing wisdom flawed?” he wrote. “I would argue that the next decade will not in fact bring the death of the solo advisor, but rather a golden age — albeit with a very important caveat.”
The stipulation for solo advisors, Kitces concluded, “is to go niche, or go work for someone else.”
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Bigger isn’t always better
To be sure, some powerful trends are driving many advisors toward teams rather than going it alone. Those include the necessity of recruiting younger planners to address the succession challenges of looming advisor retirements, the benefit of several professionals teaming up to serve more clients together and a related shift in wealth management toward equity compensation plans for partners in various stages in their careers, said Sean Walters, CEO of IWI, the wealth management professional development and certification organization that oversees the certified investment management analyst, certified private wealth advisor and retirement management advisor designations.
Regardless, there is “absolutely” still a place in the industry for solo advisors, Walters said, citing advisors leveraging artificial intelligence and other technology to the point that “they can actually earn more themselves without having to build up a lot of expense through a team of support people.” However, as they seek out a niche of one type or another, the solo advisors often decide to pick up an extra staff member or two.
“If you think about it in terms of differentiation, the family practitioner model where you’re able to provide a partnership with your clients that isn’t replicated by a large firm’s brand perhaps or even a really dispersed big RIA brand, I think there’s some strategic differentiation within that,” Walters said. “You have a unique knowledge that’s hard to replicate, so you’re going to be most successful operating with some support.”
Niches and support take many forms, as well. For example, Knutson’s firm runs fully virtually, so those who aren’t comfortable with online video meetings may not work out as clients. Organizations like the Financial Planning Association and the Association of African American Financial Advisors provide a professional community of advisors from firms of many sizes.
RIAs that have scaled up are boosting access to important wealth-building tools with a “very clear, pre-determined path” for their clients, but smaller advisors who provide a highly customized experience to customers are offering “a really powerful thing that people are looking for,” Knutson said.
“It’s very dependent on the level of specificity a client is looking for with their needs and their financial situation,” she said. “For some people, that reduction of choices is comforting, and, for others, that would feel really restricting.”
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No one is an island
Jackson has found community as a solo advisor with her branch and brokerage since starting Eagle Creek in 2015 with $1 million in client assets. These days, the firm has $89 million, she noted. A couple of years ago, the three owners of Affiliated, Rita Robbins, Tom Rippberger and Trisha Qualy, attended the funeral of Jackson’s daughter Holly when she died of colon cancer. With their encouragement, she pursued and obtained her CPWA license and attended Osaic’s “Wealth Advisor Academy” as a beta group member.
Jeannie Jackson
“There were advisors all over the country that got together. We went down to Scottsdale and it was the best professional development,” Jackson said, recalling a “completely awkward but brilliant” exercise in which they recorded each other in a simulated client meeting. “It was about listening and mirroring the client and letting them empty their bucket of what’s important to them.”
Advisors choosing whether to be solo or not will be considering any number of factors that may help or hurt them in their particular version of providing that level of service.
Knutson has spoken with a lot who “are seeking to have some more autonomy, but they’re not quite sure how much,” she noted. Those questions could come up around the types of fees charged by the advisory practice, their preferred methods of marketing to reach prospective clients or their strengths and weaknesses in the business.
“It’s a privilege to make all the decisions. It’s also a burden sometimes to make all the decisions,” Knutson said. “You don’t need to know all the answers, but they’re worth discussing with yourself and revisiting over time.”
READ MORE: How the industry’s mixed signals point to further consolidation
Smaller shops know their customers
Jackson has built a practice catering to a lot of doctors, corporate executives and business owners, but she does no marketing or advertising. Part of the practice’s growth has come from giving out pro bono services to the adult children of clients when they get their first jobs — which often leads to “the biggest compliment” from customers in the form of retaining the next generation of their households, she noted.
Part of succeeding as a solo advisor comes from recognizing some of the realities of the profession, like the fact that investment management is no longer as valuable, according to Jackson.
“What I will explain when we have a prospect is that, frankly — a lot of portfolio managers don’t like to hear this — it is not rocket science. We have the same tools,” she said. “So taking our experience and our knowledge and ultimately knowing the client, that’s what it’s about.”
