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Released February 19, 2019

Many Fusion clients have asked my team and me for our opinions regarding Wells Fargo’s new RIA channel, which we have responded to in one on one conversations. On February 16, 2019, wealthmanagement.com’s Michael Thrasher reported “Why A Broker Intentionally Left $50 Million at Wells Fargo to Join Its RIA Channel”, which inspired me to share my point of view more broadly.

I have worked in the independent RIA space for over two decades. The most common phrase I loved to hear was, “I wish I had done it sooner.” Now working with both established RIAs and teams in motion, it’s unfortunate when I intersect a team that feels they have made the wrong choice due to lack of knowledge of how to perform proper due diligence or lack of knowledgeable representation in negotiations. Too often I hear, “I wish I had met you sooner.”

To set the stage, I launched Fusion to remove confusion for advisors trying to navigate the vast array of options when entering the RIA world. We are not recruiters and do not have recruiting contracts with any wirehouse or IBD channels. We do not shop our advisors around, which is common in the headhunting space. We are an agency built by former RIA industry executives. We represent our retained clients (advisors) on an agency basis, through a proprietary and confidential process, providing veteran RIA insider knowledge to those who are looking to launch, grow, or sell their firm.

Simply put, we exclusively work with RIA custodians or other RIA affiliation models, allowing us to provide the marketplace with prescriptive advice, earned through our 60+ years of combined independent industry experience. Nobody knows RIAs and the RIA landscape better than we do.

Please join me as I deconstruct some of the comments and information reported in the article1:

1. “ ’We’ve pretty much been a fiduciary trapped inside a brokerage,’ said Perry Mattern.”

We at Fusion hear this comment frequently from advisors. Many professionals behave as if they have a fiduciary relationship with their clients, yet they are either stuck in a model which prohibits them from acting as a true fiduciary or tied to a firm with internal policies that will not allow it.

Without getting into technical details, Broker-Dealers hold their advisors to a “suitability standard of care” while RIAs and affiliated advisors are held to the “fiduciary standard of care” (the highest standard legally possible in an advisor-client relationship). As strong supporters of the RIA marketplace, I applaud Mr. Mattern for recognizing the essential differences in the models and his choice to move to the fiduciary world of the RIA.

2. “He said he wanted to start his own RIA to get better technology and embrace the fiduciary status for all his clients.”
An interesting statement for a couple of reasons, as it hits two incredibly important points in one sentence – RIA technology and the power of being a fiduciary.

When I read the wealthmanagement.com article, it leads me to believe that Wells Fargo Advisors technology leaves much to be desired compared to the capabilities available to RIAs who harness the full spectrum of advisor technology. Many of our Wells Fargo clients agree with Perry. And, many of our clients from other wirehouses are moving to the RIA space for these same reasons. They are stunned with not only the capabilities the powerhouse custodians offer but also the vast array of technology options which can be tailored to their clients, coupled with the elevated status to hold themselves out as a fiduciary. The RIA marketplace is truly an open architecture world where the advisor completely controls their technology stack and utilizes vendors who must continuously make improvements or face a risk of their RIA clients unplugging from them and plugging into a better option. This is the powerful force of competition at work, for your benefit.

Additionally, a significant part of the base technology used by most RIAs includes model management/trading, financial planning, and performance reporting software tools. It is common knowledge that First Clearing’s RIA channel is encouraging advisors to use much of the Wells Fargo Advisors’ proprietary technology offered in the firm’s captive advisor channels such as Envision and SmartStation, or a pre-selected group of third-party technologies offered through partnership with TradePMR (such as Redtail and Orion). The well-known RIA custodians (Fidelity, Pershing, Schwab, TD Ameritrade), who have been in business for decades, offer advisors a more robust menu of third-party options with well-established, integrated data connectivity across the technology waterfront.

I suspect the forward-looking comments in the article centered on the general understandings that RIAs have greater freedom, flexibility, and choice to select from the vast menu of technologies created for this market segment. Also, while I applaud First Clearing RIA channel for supporting RIAs, I must point out that this is still a pilot and likely have limited vendor relationships they can support and integrate with today. Moreover, to optimize business operating efficiencies and choice, the full universe of “best in class” technology an RIA selects to employ must have robust institutional data feeds (e.g., connectivity) to the custodian. Otherwise, you will not be able to utilize the technology program features fully, or worse, are in a “cut and paste” world of data exports and imports in your office.

As the advisor explores the rich array of available technology (financial planning, CRM, model management, and performance reporting), data connectivity and ownership of that data (you or the firm) must be understood when selecting a custodial partner.

I cannot stress enough how vital full integration and two-way data flow is for your operations staff, financial advisors, and clients. One way to understand true differences between custodians is by asking the technology vendors directly, “How does your connectivity with custodian X compare to custodian Y and Z?”

3. “ ‘There are certainly relationships and certain size clients that don’t belong in advisory,’ said Perry Mattern. Those client accounts were left with a team member who stayed with Wells Fargo Advisor.”
While I do not know the precise reasons why this team would agree to leave client assets behind as a condition to go forward, I do know that the Wells Fargo RIA option is presently focused on opportunities of fee-only client relationships.

The myth perpetuating with almost half of the clients Fusion works with is that being an RIA means having to be fee-only. While this is an option some choose after much consideration, many advisors are deciding to start with a hybrid solution, electing to register as a fee-based advisor.

As we are on the topic, hybrid RIAs are plentiful and prosperous operating on Fidelity, Pershing, Schwab, and TD Ameritrade RIA custodial units by utilizing an RIA-friendly broker-dealer. For instance, if an advisor were to leave Wells Fargo Advisors and choose one of these custodians, a broker-dealer operating through First Clearing could very well be a solution to support your transactional business. However, you would be wise to explore other broker-dealers with the same rigor and discipline that you apply to the RIA custody search.

Why? It is crucial to investigate firms who have RIA custody and broker-dealer clearing divisions under the same roof who can offer a standard advisor technology that spans both sides of the business, which is efficiency boost for your client service team. In other situations where the commission side is not materially significant, the custodian and broker-dealer can very well be separate companies. However, it is critical they have experience working together (e.g., a broker-dealer who has advisor relationships with your custodian choice).

If you wish to continue to work with some clients in a hybrid scenario, or you have legacy business on the books that requires a hybrid solution – even if only a temporary state – you do not have to settle on a solution “just because.” You are already making a move to find solutions for the betterment of your clients. You owe it to yourself, and to clients, to conduct complete due diligence on the new options you didn’t have before.

  1. “Rather than establishing a new RIA in secret and sneaking out the door with clients, working with Wells Fargo greased the transition process.”
    It is a fact that you don’t have to work in secret to explore First Clearing, but to classify it as “sneaking out the door” with clients is merely an opinion. Moreover, if you are sitting on the FiNet platform, there is no need to sneak out of any backdoor as you contractually own your client relationships.Announcing to Wells that you are interested in the RIA world of First Clearing is showing your hand that you are a “flight risk”. This is generally not productive and has the potential to cause undue pressure during a time you should be processing due diligence on outside custodians. If the path of least resistance is prioritized over a superior RIA model, at least you arrive at the decision with eyes wide open and equipped to explain this to your staff and clients.Additionally, exploring outside options first allows you to come back to First Clearing and request to perform due diligence on their RIA solution. Only at this point will you harness the power of education and come prepared to ask intelligent questions and make proper comparisons about a new home for your clients.
  2. “There was effectively no repapering beyond the signature required of each client.”As it was back in the PCG to FiNet days, this seems to be a fundamental value proposition of the new division. However, the fact is that “effectively no repapering beyond the signature” is not a fair and complete statement. When a RIA launches, advisors need to present documents such as their new firm’s ADV, client advisory contract, and privacy policy to clients. The Investment Advisor Representative (you) once sitting on the corporate Wells Fargo ADV has now become the Registered Investment Advisor sitting on their own ADV. The client advisory contract will need to be signed by each client, same with new account features and any other changes you may wish to implement. While Wells’ RIA solution offers a perceived advantage, at the end of the day, it is only a static moment in time. The client is going to receive a package with paperwork to sign no matter the division you originate from inside Wells Fargo. Also, while I can’t speak to the level of paperwork assistance they are providing, I can vouch for the high touch vendors that we work with who are incredibly efficient in handling this part of the process.It is an advantage that moving to First Clearing will likely prohibit Wells Fargo Advisors from placing retention calls to your clients during the transition. However, a proper communication plan with powerful “why” reasons you made a move, coupled with strong client relationships rarely results in losing clients to a stranger in the office who is promising to waive a few annual fees in exchange for the client agreeing to remain in the conflicted environment. Again, this does not apply to the FiNet team who contractually owns their client relationships and risks no “call out” retention strategy being activated.

Our experience has shown FiNet to be very amenable in these situations, even helpful to the advisor leaving the platform.

THE BIG PICTURE

More options for advisors and the clients they serve is a welcome boost to the RIA community. It makes strategic and profitability sense that Wells Fargo is being progressive in acknowledging the rate of flow into the rapidly-expanding RIA side of financial services and wanting to monetize on trends while decelerating the rate of overall firm attrition.

However, the barriers of entry to unseat the more established RIA custodians such as Schwab, Fidelity, Pershing and TD Ameritrade are astronomically high. Each of these custodians serves hundreds, usually thousands, of established RIA relationships. They can boast decades of experience building technology and service capabilities on their platform while having invested billions of dollars on proven advisor and client solutions to date.

Furthermore, it is doubtful for the foreseeable future that the First Clearing RIA channel could successfully compete head-to-head and actually “win” an external RIA relationship in good standing with the dominant institutional custodians. The bar is just merely set too high.

While I applaud Wells Fargo’s efforts to join the RIA custody industry (and support any of our clients who are at Wells Fargo and wish to investigate First Clearing), I believe that all advisors who seek to launch as an RIA should look at the entire market landscape for baseline comparison. Change is challenging enough – and given the fact that many of you have an established business, with a client base which has come to expect the very best from you, you may find the First Clearing RIA solution lacks the breadth and depth of services and technology connectivity you desire.

In closing, it is about being able to explain to your clients the decision to move to your own RIA became clear after thoroughly vetting all options. Unfortunately, Wells Fargo has been the recipient of much negative press as of late, at times prompting clients to ask their advisor why they are still there – which makes this final statement very important. Deciding to move to an external custodian, or stay within an affiliated company’s RIA option, after completion of a comprehensive due diligence process will fortify your position, and bolster any statements made to your clients that you are confident it is the right home for them and explain why.

And that is being a true fiduciary!

To your success,

Mike Papedis
Founder and CEO
Fusion Financial Partners

Disclaimer

The statements, opinions, and analyses presented in this report are for informational purposes only. Any opinions or probabilities expressed in this report are those of the author as of the report date and are subject to change without notice. Fusion Financial Partners makes no guarantee as to the completeness or accuracy of the Information, nor can it accept any responsibility for any errors in the report.

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