The COVID-19 pandemic experience has dramatically affected the way business happens in many different industries, and the financial services industry is no different.
As the pandemic surpasses the one year mark, vaccines are distributed, and case numbers begin to fall, advisors must seize the opportunity to build on the innovation necessitated by COVID-19.
We should resist the temptation to revert back to traditional practices just because it is “what has always been done.” Through that vein, let’s examine the wirehouse model in detail.
The Pre-COVID Case for the Wirehouse Model
Prior to 2020, a financial advisor practice could make a solid case for continuing to operate at a wirehouse. While the benefit of the wirehouse setup has lessened a bit in the past decade, it still made sense for many financial practices.
Wirehouse advisors could point to the prestigious name of a wirehouse as a large part of what makes their business successful and one of the key reasons their clients want to work with them. In addition to having a “prominent name,” wirehouse advisors gain a physical office and staff support for operations and administrative tasks. The thought is that simplifying advisors’ lives with this setup will allow them to focus on running their business.
The Cost for Wirehouse Advisors
The office and support staff is nice to be sure, but at what cost? Wirehouse advisors often take home less than half the revenue generated from their practice. The rest goes to the expenses generated from the physical building and staff support. Financial advisors must ask themselves, is having the wirehouse “name” and setup worth the hundreds of thousands of dollars (if not millions) that could be going into their pockets? Or being invested back into their practice?
The structure of the wirehouse may have been important in the past, but post-pandemic advisors no longer need the overhead. The pandemic has vastly shifted expectations for consumers in terms of flexibility and interaction when working with people providing professional services. People have recognized that technology can accomplish a great deal without sacrificing service quality. Now is the time to go forwards, not backwards.
Fortunately, the financial services industry is part of this technology revolution. With the right tools, financial advisors can run a business anywhere with an internet connection. In-person meetings can still take place and have their value when appropriate, but technology has allowed the same high level of service to be provided for a fraction of what it used to cost. As a financially savvy advisor facing the effects of fee compression on your business, moving beyond the wirehouse model may be just the way to reduce expenses and keep income stable.
A New Firm for New Changes in the Industry
When you list out the ways to set your practice up for success, switching to a different firm might be at the top. Deep meaningful connections with clients can help make the prospect of moving firms much less intimidating. Further, a strategic communications plan can help you announce a move with the right messaging and generate excitement for the future. At this point, you may be asking yourself, which firms do it better? That’s a great question and the answer depends on the services you find most valuable and how much it costs to get what you need.
One thing is for sure. You can likely get what you need, and more, at a fraction of what you are paying today working at a wirehouse. Now that accounts can be easily set up completely electronically at most firms, account service takes minutes to do what used to take hours. With clients happily agreeing to meet with clients anywhere, especially virtually, why would a wirehouse advisor bringing in a million dollars in revenue continue giving $500,000+ back to their firm each year?
Here’s the good news. Advisors have a choice where they run their business, and there are firms out there who value their advisors more, pay better, and have the technology to provide advisors what they need to succeed.