Over 9,000 advisors switched firms in 2023, marking a 7% increase from a year ago.* While this movement is prevalent across all industry channels, it is particularly pronounced within the RIA world and represents a growing trend which is a kind of dichotomy.

Namely, RIA Severance: Those advisors employed by an independent firm who leave for another firm or to start their own independent practice.

The term Disconnected from RIA indeed it seems paradoxical, given that many VNRs were born from the entrepreneurial spirit of their founders. These individuals often chose independence to break free from the bureaucracy of larger firms to shape their own destinies. However, it is important to note that many of their advisory team members and subsequent hires are technically employees, not freelancers. Likewise, many RIAs have expanded their advisor ranks by recruiting career changers or recent graduates and feeding them referrals or redistributed clients.

Advisors hired by an RIA may hold different titles, such as service advisors, junior advisors, associates, or IARs, depending on the firm. Despite these differences, they share common characteristics: They are usually non-owners (or minority owners), earning between 25 and 35% of their income or receiving a salary and bonus. They serve a specific client segment on behalf of their employer and adhere to their firm's branding, investments, and client service processes.

While most RIA advisors report feeling well-supported, it is important to acknowledge the challenges they face. The strategies that savvy RIA owners implement to drive efficiency, drive growth, ensure a consistent client experience, and increase their appeal as acquisition candidates can inadvertently lead to advisor dissatisfaction. As these business owners build the value of their enterprise, the advisor's autonomy, individuality, and sometimes compensation can be compromised.

With RIA M&A activity reaching another near-record year, much larger RIAs and crowdfunding platforms are acquiring hundreds of advisors each year – a stark contrast to the boutique firms they originally joined.

As these advisors seek greater autonomy and flexibility, better compensation, ownership opportunities or even the ability to expand into different areas, they are exploring their options.

What will happen next for RIA disengagements?

Employee advisors looking beyond their RIA firms have several avenues to consider. These are the four most popular among our advisory clients:

• Joining another RIA firm that better aligns with their goals, client needs and cultural preferences. Some may prefer to partner with a larger national firm that has more scale, resources, staying power, and more favorable compensation (including equity ownership opportunities). Others may prefer to join a smaller firm where they have more voice, personalization and upward mobility, including succession opportunities. While a move from one RIA to another is more popular, an advisor should ensure that the firm is quite different from their previous employer and that many of the issues they face are not at risk of recurrence.
• Switching to an office, bank or private bank that offers infrastructure, a reputable brand and “everything under one roof” can also reward the advisor with a lucrative recruitment deal and enable them to go further into the market by gaining access to a well-known brand and in-house banking and lending. That said, many RIA advisors routinely sell against the wire model or fear the cultural implications of working for a large institution.
• Launching their own RIA can give them more control and ownership over their practice, but it also comes with additional responsibilities and risks. Some advisors may gravitate toward the entrepreneurial challenge and reward of creating their own firm, as well as the ability to establish their own strategic roadmap, brand image, and client service model. Others may find the operational burden too overwhelming or the initial start-up costs and capital expenditure too great to overcome.
• Starting an internship at an independent broker dealer or becoming an independent contractor under an existing RIA firm. This provides many of the same benefits of starting an RIA while reducing the time and headaches of building infrastructure and managing operational challenges. However, these types of options are more expensive than building an RIA and require the advisor to give up elements of control as they operate on someone else's platform and under their own compliance policies. “Supported independence” models like these have gained popularity with both remote and RIA disengaged.

An employee advisor may feel many of the pushes described above, and they may also be drawn to some of the alternatives available to them. In our experience, the most successful transitions occur when an advisor has a benign employment contract (limited non-solicit or non-compete language), has built their own practice instead of serving their firm's clients, has convictions in the strength of their relationships and associated portability and a long-term perspective focused on growth. Likewise, a new firm or platform will also be more willing to aggressively pursue advisors who possess these characteristics.

Smart RIAs are aligning economic interests in more creative ways than ever before and are constantly strengthening their advisor value propositions. However, as the VNR space continues to mature, consolidate and professionalize, the cost of advisors is likely to decline.

* Data derived from Diamond Consultants 2023 Advisor Transition Report.