Adam Cox’s decision to leave his job as the wealth management head of a regional bank to start an RIA didn’t come in response only to the new career prospects now open to independent advisors.
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It was also owing to the lack of opportunities Cox saw for wealth managers working within banks.
Cox and two colleagues, Kyle Cipperley and Paula Bindert, left The First National Bank in Sioux Falls, South Dakota, last week to start a registered investment advisory called Prairie View Wealth Partners. The move was possibly a big step down for someone who, as chief wealth management officer of a regional bank with roughly $10 billion in client assets, had overseen a team of roughly 40 advisors and other employees of various stripes.
But for Cox, who was at The First National Bank for 10 years, it was necessary for his career.
One of the chief limitations for advisors not just at a bank but any institution where they work as direct employees is their lack of an ownership stake in the wealth management business they’ve spent so much time building.
“I think the main reason why the independent channel is coming on so strong is you can provide advisors a path to ownership and a path to equity,” Cox said. “And that is just not possible at most places, including the majority of banks.”
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The research firm Datos Insights found in a March report, “From Scarcity to Abundance: Why Recruiting Budgets Won’t Win the Advisor Talent War,” that only about a third of all banks with wealth management divisions offer some sort of long-term investment program meant to give advisors a sense of having an interest in their clients and practices. That puts them at a disadvantage to both RIAs, with their offers of ownership stakes, and wirehouses, which often defer parts of advisors’ compensation to give them an incentive to stay around.
William Trout, the director of securities and investments at technology data firm Datos, said ownership is the only point of attraction RIAs offer to bank-based advisors.
“They also tend to be much more nimble as far as technology, workflow automation and integrations, say, using AI to streamline workflows and increase capacity,” Trout said. “Even RIAs’ traditional weak points like compliance have been pretty much solved for. There are so many turnkey solutions now that fit right into the workflow at RIAs.”
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The appeal of RIAs to bank-based advisors
The RIA world is a familiar one to Cox. Before moving back to his hometown of Sioux Falls to be close to family, he had worked at a registered investment advisory in Minneapolis.
After he left, he found he missed the sense of autonomy that came with working at a small, independent firm. He was also impressed by the array of services that had come along in the ensuing decade to ensure RIAs can offer clients many of the services previously found only at large institutions.
“I think probably the biggest thing is all the tools and the technology that you can leverage, depending on what your client base is,” he said. “We’re leaning really heavily into tax planning, so we can then select the tools that make sense for that.”
Cox and his partners are far from alone in choosing to start an RIA after leaving a setting where they worked as direct employees of a large institution. A report from February by the research firm Cerulli Associates found that assets managed by pure RIAs have increased by 11% a year on average for the past decade, while those managed by hybrids with RIA and brokerage arms have gone up by 12% on average.
Much of that growth has come not just at the cost of banks with wealth management departments but also large Wall Street firms and even independent broker-dealers with substantial divisions for advisors working as direct employees. With all of those firms, advisors’ lack of ownership in the businesses they run is a hindrance to retention.
“I think that’s probably the No. 1 reason why people are leaving not just banks but also some of the wirehouses, some of the existing big channels, is that they want a path towards ownership,” Cox said. “The independent channel is able to offer that.”
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Rather than seeking to share some ownership of their wealth management practices, many banks take much the opposite tack in lawsuits filed against advisors who leave and try to take clients with them. In a recent series of prominent legal actions, JPMorgan has argued that bank-based advisors who departed for other firms couldn’t have built the businesses they had without help from the firm’s banking services.
Cox acknowledged that many bank-based advisors’ clients come from referrals from their firm’s bankers. That system presents at least a couple of complications.
For one, bankers can be reluctant to hand over clients to wealth managers they may not know very well. Some have a hard time trusting a colleague in another department to provide the level of service a valued customer has come to expect.
“You have to really make sure that you’re dialed in on people who can send you business internally,” Cox said. “If the system works well, you should get fed leads really regularly. But if the system always doesn’t work well … it’s like it’s a complete afterthought.”
Trout at Datos said many of bank-based advisors’ referrals are expected to come through their firm’s commercial bank. The hope is that when prominent clients sell their business, they’ll turn to the bank’s advisors to manage the resulting proceeds.
But many of them already have relationships with outside wealth managers.
“Advisors are sometimes told they will get 100% of their referrals from the bank, the commercial bank or another line of business,” Trout said. “In reality, that happens only about 20% of the time.”
Cox said there is also the almost inevitable pressure to “cross-sell” clients bank products and services like checking accounts and loans. Cox acknowledged that it is in some ways convenient to work at an institution that can attend to almost all of its customers’ financial needs.
“But just because you have it under one roof doesn’t mean it’s always the best solution,” Cox said.
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Wealth managers’ desire to not play second fiddle at a bank
Even more than that, though, there’s the basic fact that wealth management is usually a secondary consideration at banks.
“Generally speaking, wealth management is going to be usually a much smaller part of the bigger organization,” Cox said. “But if you go independent, or even if you go to some of the wirehouses, these are wealth management firms. So everything is geared towards serving wealth management clients.”
That focus on wealth management is what Cox is planning to offer at Prairie View Wealth Partners. The firm’s offerings in tax planning will mainly come from his fellow founder, Bindert, who had previously operated her own tax practice. The third partner, Cipperley, is a certified financial analyst with expertise in building investment portfolios specific to individual clients.
Cox said his ideal clients are people who are building their wealth and looking for a partner that’s willing to grow with them. His goal is for Prairie View Wealth Partners to have $250 million in client assets within a year.
Those will be held for safekeeping through custodial services offered by Raymond James. The firm is also relying on various third-party technology systems, including the customer relationship management (CRM) software Wealthbox, Holistiplan for tax planning and Vanilla for estate planning.
Cox said he now has no set goal for just how big he’d like to see Prairie View Wealth Partners eventually become.
“The biggest thing we were trying to solve for is that we feel like clients do better when they’re served by owners,” Cox said. “And ownership for us shows continuity — that we’re going to be here for the long haul. It also shows that we are the decision makers, and so if we want to build our firm around the clients that we want to serve, we’ve got the autonomy to be able to do that.
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