Advice for ultra-wealthy families has entered a third epoch.
The first was agents from global banks offering advice and executing trades. The service quality was white glove and top shelf. The banks had estate lawyers and tax planners with the finest university degrees. The banks were called “wirehouses”, because a web of telephone and telegraph wires connected each advisor with his bank parent.
An advisor benefited from the bank’s brand name and resources, but he resented two facts above all else. The first – his advice was conflicted; he had to push clients into products owned and approved by the bank. The second – the bank took their kingly tax and only shared 20% to 30% of the client’s fees with the advisor and his team.
The second epoch began when advisors left the banks and hung out their own shingle. The advisors became independent Registered Investment Advisors (RIAs). An advisor could now offer clients truly independent advice. Also, he no longer needed to share fees with a bank parent – 100% of the fees went to the advisor. The downside was that if he wanted to offer clients white glove services, the cost had to come directly out of his own pocket. Some essential services were worth paying for, but the caviar and fancy estate lawyers usually weren’t in the budget.
In the first epoch was dominated by a handful of global banks. The second epoch saw the market splinter into thousands of small independent advisors.
The third epoch is underway now. 30 to 50 firms, are purchasing independent advisors using cash from private equity investors. These new “aggregators” offer some of the service benefits of the global banks. So far, no aggregator has built a national brand name like a global bank, but that’s often the long-term goal.
The economic deal for advisors at an aggregator is typically worse than an independent firm, but better than a wirehouse. Unlike banks, aggregators don’t have their own brand of investment products, so advisors retain the ability to offer independent advice.
While we’re in the third epoch, the global banks and independent advisors haven’t gone extinct. Today, banks, independents, and aggregators all compete for ultra-wealthy families. The piece that is missing is a resource for wealthy families to understand the advice landscape. There are no unbiased resources explaining the pros and cons of wirehouses, independents, and aggregators.
That is why we created Advisors & Investors.