f3Logic, LLC. | 2020

11980 Portland Avenue South, Burnsville, MN 55337

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Investment Adviser Representatives offering advisory services through f3Logic, a registered investment adviser. Securities offered through Independent Financial Group, LLC (IFG), a registered broker dealer and a registered investment adviser. Member FINRA/SIPC. f3Logic, LLC and IFG are unaffiliated entities.


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  • Richard DeSalvo

A Battle Between Giants

Short-term money creating long-term problems in the wealth management industry.


Every day, like I assume most of us do, I read the news and try to understand the issues impacting our industry. Recently, I’ve noticed that the big RIA aggregators and independent broker dealers are growing at a record pace. While I’m always happy to see firms in the wealth management space do well, I wanted to understand what was fueling this trend.


Upon looking into it, a concerning pattern began to emerge. Like many other industries, fewer and fewer firms control more and more of the business. These firms have created a seller’s market, allowing them to set an advisor’s market price as they see fit. It has become a battle between the giants. My fear is that an advisor can get caught in the middle, looking for short-term benefits rather than seeing the big picture and creating a sustainable career.


According to Financial Planning Magazine, approximately 27,000 advisors transitioned firms in 2018. I hope that advisors are transitioning for the professional depth, technology, operations, investment offerings, executive leadership, and client service. Unfortunately, there are no statistics that tell us why. I suspect that it’s due in part to the big firms handing out substantial checks to attract advisors with impressive AUM numbers. When speaking with advisors, this topic comes up often and is occasionally the sole focus of our conversations.


The aspect of this trend that worries me most is the default rate for advisors that do take a check and don’t meet AUM or production levels. If an advisor joins a firm and is paid upfront based on AUM of $100M, what happens if the market drops and their AUM decreases to $75M? This is a real possibility that puts advisors into the difficult position of having to recoup their AUM in a short period of time or risk losing their transition check. Being that firms are attracting so many advisors with the promise of upfront money, I’m concerned our industry is headed towards a version of the sub-prime mortgage crisis, should the market take a downward turn. Furthermore, a recent survey from Financial Planning Magazine said that 33% of advisors are not happy with their move to a new firm. If they’re captive due to a financial commitment, they would be unable to leave and find a new firm that would better support their needs.


Although this behavior on the part of large firms will continue for a time, the market cycles will eventually switch, becoming a buyer’s market once again. That is why I think considering the potential issues this trend creates is more important than the growth numbers touted in marketing materials and publications. I would prefer we stay in neither a buyer’s nor seller’s markets but a client’s market.


Firms should be building for service and high technology standards. They should be focused on supporting advisors for sustained success instead of impressive short-term numbers. Furthermore, the success of these large firms should not be based on how many advisors they recruit, but the retention of those recruits and how successful they are during their tenure.


No industry is perfect but let’s not let short-term monetary gains be our collective downfall. If you are planning to make a move, don’t let upfront money be your key driver. Look at the firm that can serve you and your clients’ needs best and help you reach the next level of your career.


Rich DeSalvo

CEO and Founder

f3Logic, LLC

Where Fiduciary Freedom is First

Advisory services are offered through f3Logic, LLC, a registered investment advisor.

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