Is entrepreneurship dead in the advisory business?

The advisory business is constantly changing. New technologies, new client expectations, margin pressures and industry consolidation have seen the working life of the independent financial advisor turned upside down. The model of advisors as independent entrepreneurs is harder and harder to find. With many of those pressures filtering through the dealer side of the industry WP got together with Agora Dealer Services to ask the question: in light of all these changes, is entrepreneurship dead in the advisory business?

To answer the question, Paul Morford, CEO and Jeff Thorsteinson, COO at Agora Dealer Service Holding Corp, were joined by Wealthforce president Neil Lecky and Sentinel Financial Management, president Som Houmphanh. Together, the panel worked to pin down what changes have challenged the industry’s entrepreneurial spirit. They found that while these challenges are significant, a new raft of tech-driven changes are renewing that spirit of entrepreneurship and making the independent path profitable again.

“Entrepreneurship is very much a state of mind,” says Paul Morford. “An independent advisor would be offended to not be considered an entrepreneur, even if they're in a large shop…What's really interesting to me is what's happened over the last 20 years where there's been so much consolidation. This was an extraordinarily entrepreneurial industry 20 years ago. Now we have a smaller number of very large places that are constraining that entrepreneurial spirit. These are often corporate, top down environments that are really antithetical to how this industry started.”

Houmphanh, Lecky, and Thorsteinson agreed with Morford’s read of the past decade or two of the industry. Lecky, having come from a large dealership, says that these bigger consolidated shops focus more on the bottom line than the success of individual advisors. With that comes a focus on those advisors boasting the biggest books and the highest net worth clients. Smaller advisors in those shops, Lecky says, often face a squeeze and are now seeking new means to go independent again outside of these big dealers. Starting as an independent advisor has been harder and harder through this period.

“There’s a lot of unknowns in this business,” Lecky says, “Competing against the bigger players is a real concern for the new people trying to start in this business. As those companies get bigger and bigger they crowd out newcomers.”

Lecky says that in the prior environment, potential independent-minded dealers have taken an ‘if you can’t beat ‘em, join ‘em’ approach to the larger shops. They’ll put aside their dreams of a more entrepreneurial business to take the perks a big dealer can offer. He likens it to working for Google rather than a tech startup, there’s more surety in taking a job with the big guys and there’s financial risk in running an independent business with all its administration, overhead, and compliance costs.

Many independent advisors, he says, will join larger dealerships in part because they are perceived as more prestigious, as well as seen to offer more benefits and a better compliance service. That story is changing, though, and Lecky says that technology has allowed smaller dealers to offer backend services at or above the level bigger shops can provide.

Houmphanh says there’s also a more interpersonal challenge entrepreneurial advisors face: networking. As the industry has consolidated it’s harder for young entrepreneurial advisors to connect with one another and with potential mentors in their streams. While he acknowledges all these challenges, he also sees a new wave of change on the horizon, one driven by tech.

“In the last few years companies like Agora have started providing those options for the smaller advisors to compete with the larger institutions,” Houmphanh says. “Those smaller advisors still wanted to provide for their clients but in the face of consolidation they didn’t have many opportunities. Now we’re seeing the spirit of entrepreneurship come to light again as we see a changing of the guard in our industry.”

Jeff Thorsteinson explains that Agora can power this entrepreneurial comeback by providing “complete independence and margin” to independent advisors. The platform uses automation to widen the thinning margins small shops faced, slimming costs like compliance and admin. As well, it facilitates a convenient client process and allows an advisor to operate without having to sell them your shop’s proprietary products. In facilitating this independence, Thorsteinson says advisors can be empowered to offer unconstrained advice that will always sit better with an independent-minded client.

Each of the panelists agreed with Thorsteinson and Houmphanh’s assessment that the pendulum is swinging back towards the independent entrepreneur, powered by Agora and platforms like it.

“Any advisor that I’ve spoken to over the last number of years is only surviving based on their skill sets and what they do day to day, on that basis entrepreneurship is certainly alive in our industry,” Paul Morford says. “What’s happened over the past decade is that entrepreneurship became constrained by the available options. But exciting change is happening right now. Through firms like our’s we’re delivering new technologies and processes and the time is ripe for entrepreneurship to blossom again.

“Entrepreneurship is not dead in this industry. Not whatsoever.”