Ex-Schwab Exec: Wirehouses, Banks Are Challenging RIAs

“It’s a ‘jump ball’ for both wirehouses and RIAs,” says Rob Farmer, managing director and head of communications at The Rudin Group and a former Charles Schwab executive.

RIAs will remain on a “growth trajectory” but “not without challenges: Wirehouses and banks [are] competing more fiercely for those clients’ assets,” he argues.

Indeed, in their effort to retain the assets potential breakaway advisors manage, wirehouses are instituting changes that “make them look a lot more like independent [RIA] firms,” Farmer says.

These include adjustments in fee structure and offering added client services like those RIAs provide.

Meanwhile, RIA custodians have been educating advisors on “the proper way to break away” without causing “regulatory backlash,” says Farmer, who was managing director of corporate communications for Schwab’s institutional business.

In the interview, he describes a way that wirehouse advisors can inform clients they’re leaving their firm before making the actual move.

“But there are some real guardrails around what they can and cannot say,” he stresses.

At Rudin, Farmer is helping clients — all in financial services and which include global banks, such as BNY Mellon; RIAs; BDs; asset managers; data analytics firms; and fintech companies — get more attention in the marketplace by “highlighting the people at the firms,” he explains.

That’s accomplished by embedding “in a nuanced way” an executive’s personal story within the message that the firm wants to deliver concerning its products or services.

With most of Rudin’s clients on the East Coast, mainly in New York, part of Farmer’s mandate is to expand the firm’s presence on the West Coast, home to many financial services and fintech firms. Farmer is based in San Francisco.

He began his nearly nine-year public relations strategy career at Schwab in 2013 as director of corporate communications. Two years later, he advanced to managing director. In 2021, he left to join Rudin.

ThinkAdvisor recently interviewed Farmer by phone from San Francisco. 

Commenting on what he calls “a big challenge in the retirement space,” he says: “The industry is in need of helping younger people understand the [necessity] to start planning sooner. Employers play a big role” in meeting that challenge.

Here are highlights of our interview:

THINKADVISOR: Where do you see growth in the RIA arena?

ROB FARMER: I’m optimistic for the RIA space to continue the growth trajectory that we’ve seen, but it may not be on the [same] level.

Why not?

The future of RIAs is still a growth story but not without challenges, because you’re seeing wirehouses and banks competing more fiercely for those client assets — it’s a “jump ball” for both the wirehouses and RIAs. 

The wirehouses are looking a lot more like independent firms [RIAs].

In what way?

Being more relationship-based, offering value-added services in addition to investment management. 

The wirehouses certainly don’t like to see assets leaving in a breakaway manner. 

So they’re making their offer more like the independents’ [RIAs] offer. That’s been their approach to retaining the assets.

They’re changing fee structures, changing their value-added proposition — offering more services within the offer itself, whether it’s tax management or retirement planning. 

Those are some the things they generally have been reluctant to provide but are [now] within the framework of the relationship

What’s responsible for making RIAs so successful?

Telling their stories and articulating their value proposition, RIAs have been able to capture the money transferring out of wirehouses. 

And investors themselves are waking up to what the value proposition is in the independent space: relationship-based, fee-only and all the other value add that [RIAs] offer.

It seems that wirehouse breakaway brokers were on the rise and very controversial about 10 years ago. Leaving triggered a number of FINRA arbitrations. Has all that friction quieted down?

Wirehouses used to pull back on breakaway advisors a little more fiercely than they do now. But the advisors have gotten a lot more educated about the proper way to break away. And the custodians are helping them do that.

Part of the custodian’s role for the last 10 years has been educating the wirehouse advisors about both the opportunity [afforded by leaving] and the approach to how to do it successfully without having a regulatory backlash or barriers put up by the wirehouses themselves.

The trend continues to favor the independent model because the end clients themselves have a better understanding of what the independent advisor [RIA] brings to the table. 

So it’s not as fraught as it once was, though the momentum continues to go the way [of RIAs].

What’s an example of how advisors learned to better approach leaving a wirehouse?

Having a conversation with their clients: making sure the clients understand what they’re planning to do and how it’s going to impact them — how it might be better for them. 

So making sure that the assets travel with the advisors when they break away. 

They understand the rules and regulations around client conversations and how and when they can appropriately have them within the regulatory framework and not run afoul of noncompetes or other requirements they have with their current situation at the wirehouse.

My understanding is that wirehouse advisors aren’t permitted to tell their clients in advance that they’re going to leave. Please clarify.

Those conversations can take place in certain circumstances. There’s a very general way of saying [they’re leaving]. They can have these conversations, but there are some real guardrails around what they can and cannot say.