The New Age of Financial Advisor Independence: What Comes Next

Taryn Huget [0:02] 4 week break and we're back, Matt. Welcome back to the podcast. It's been a few weeks since our last episodes and I have to say, I'm pretty happy to be back.

Matt Enyedi [0:10] Thank goodness we're back because for the sake of our industry, I'm not sure we can ever take a hiatus again.

Taryn Huget [0:16] OK, you're going big today. Please explain a little bit.

Matt Enyedi [0:19] Well, think about this. We come in here every other week discussing our industry, our company, our advisor. things like high net worth or growth and leadership and and what it means to markets and technology, and everything around our business. And then while we're out, a single article on an AI empowered assistant with an embedded tax overlay completely unravels the financial services sector. Global financial services market cap reduced by almost $100 billion in a single day.

Taryn Huget [0:47] And so let me get this straight. You think that happened because we were on a 4 week hiatus? You think you and I are that important?

Matt Enyedi [0:55] Well, the way you phrased it leads me to believe maybe not. And in fact of the matter is I've always struggled with correlation versus causation.

Taryn Huget [1:03] I do think it has a lot more to do with the questions that AI assistant raised to the investment community that then spiraled. Investors suddenly started pricing in a future where AI automates key value streams like fee-based planning and personalized financial advice.

Matt Enyedi [1:19] Yeah, look, there's, there's disruption out there, just as there always has been. Think about direct consumer funds of the 90s, or the robo-advisor craze of the early 2000s. This article created an almost existential question on the value of human-led advice. But unlike those previous examples, this one just feels different. Uh, the market's, sure, they may have overreacted. But this change is happening so fast and so dramatically, I don't think we can sleep on it.

Taryn Huget [1:46] Yeah, so yes, AI is the hot button and it's absolutely accelerating change, but change has been happening if you think about it, in our industry for years. You just mentioned things like direct to consumer funds and robos, but think about the shift from brokerage to advisory, or the move to independence, or then to RIAs, and that's now shifting again.

Matt Enyedi [2:09] Change is always around us. And the fact of the matter is, we've always had to be highly adaptable.

Taryn Huget [2:14] Completely. And a bulletproof strategy is one that is built on solid fundamentals, but also changes with the times. And for us at LPL to be the best firm and wealth management, we have to have a solid strategy and a strong person leading it. And today's guest is just that guy, group managing director, head of strategy. And Chief Growth Officer Marc Cohen. Marc is constantly thinking ahead to what's best for our advisors, our employees, and the firm. And Marc is joining us today to unpack some of the latest headlines dominating the industry, how they fit in with the current trends, and what this all means for the future.

Matt Enyedi [2:58] What a cool conversation to come back to and hopefully save the industry. If You Could with Matt and Taryn is back, folks, here we go. Let's do it. Marc, long last, we've got you on the pod. Welcome to If You Could.

Marc Cohen [3:12] Thank you, I'm excited to be here.

Matt Enyedi [3:13] We're thrilled to have you here. As we mentioned, you've got this big job at LPL. You are leading our corporate strategy, you are our chief growth officer. While you and I have worked together here for the last, call it 7+ years in a, in a couple of different roles, the fact is that you and I have worked together for a little bit longer. I was, I was doing the math, I think it was probably 2010, and we had Just started the RIA custody offering, or RIA hybrid offering here at LPL, and you were one of the leading founders of a company called MarketCounsel, that was effectively building the RIAs of the future. And so many of these big names that we see today, you had your hands in, and we worked together at your big uh annual conference, and so it's kind of fun to, to think about how long we've worked together, one way or the other, throughout the various stages of our careers, but also of this industry.

Marc Cohen [4:03] It's actually most of my life. You talk about MarketCounsel. I started in this industry as a 17-year-old kid.

Taryn Huget [4:08] Hey, wait Marc, Marc, I'm going to stop you. You started at 17 years old.

Marc Cohen [4:11]  I started at 17. I, uh, I was the typical high school kid who just got his driver's license, was out to buy my first car, and realized I need some gas money to be able to do that. And so I looked for my first afterschool job. What was the afterschool job? So I got a role at MarketCounsel, uh, leading business consulting and, and, and law firm for independent RIAs. Um, and I was answering the phone, taking out the garbage, doing some of the filing, very clerical work, senior year in high school, my senior year of high school, and it ended up transforming into more. I remember my senior year of high school redoing the entire benefits program of the company and changing out the payroll providers, and here I was a 17 year old kid sitting across from. The regional manager of ADP negotiating our payroll contracts.

Taryn Huget [4:51] I'm a little embarrassed to say what I was doing at 17 years old because it definitely wasn't that. Matt, what were you doing at 17 years old?

Matt Enyedi [4:58] Well, I had a job too. I was working at the local sporting goods store, Orange Sporting Goods, and trying to fulfill my dream of becoming a Professional athlete. Yeah, Taryn, what about you? What was your job at 17?

Taryn Huget [5:09] I was a 17-year-old working at Abercrombie and Fitch.

Marc Cohen [5:13] That makes sense too.

Matt Enyedi [5:14] That totally tracks, you know, I've had a lifelong question about folks who worked at Abercrombie and Fitch. Was, is it true that they literally pumped cologne through the HVAC system?

Taryn Huget [5:23] That might be true today, but back then you just walked around and sprayed everywhere you went. That's how it went.

Marc Cohen [5:29] I was taking the money I was earning and spending it at sporting goods stores and at clothing stores. So I came from that entrepreneurial environment where We were 35 or 40 employees at our largest, which meant that even though I had a big title of COO and I was running our finances and our tech and our sales and our client relationship experiences, and our marketing and everything in between, I was still the one that was climbing up on a chair and changing a light bulb when it was necessary.

Matt Enyedi [5:55] What an exciting time as the world was really moving towards the independent and in this particular time. Specifically RIA space.

Marc Cohen [6:03] 100%. We were right on the forefront of that movement, um, helping hundreds of advisors every year find their independence, um, typically with an RIA construct, but sometimes supported through an IBD or another platform of some form, and then being able to help them through their whole life cycle. And so I remember the, the first major transition out of Merrill Lynch in 2008, orchestrating that multi-billion. dollar practice coming out of Merrill to start their own RIA. Before that, it was really trailblazers and, and Cowboys with much smaller firms. That was the first really big one. And then that same firm, a few years later, being the first one to really sell to First Republic at the time, a really big transaction and us helping them navigate through that.

Taryn Huget [6:41] And it's interesting to think about how earlier in your career, you were an entrepreneur helping. Employees think through their next chapter. And now you're really an employee helping entrepreneurs do the same. You know, what prompted you to ultimately make that shift and come to LPL?

Marc Cohen [6:59] I mean, I think the move to LPL was all based on this concept that I'd built a career for 15 or 16 years at that point in supporting advisors working inside of a small business myself, like I mentioned, and I was at a spot in my career and in my life where I felt like there was an opportunity to actually have a bigger impact. And I got to know the leadership team here at LPL fairly well through some shared clients, and I saw an opportunity to come in and help accelerate the vision that they had for who LPL could be. To build the next iteration of independence in this marketplace.

Taryn Huget [7:31] As the head of strategy, you know, you really have a unique vantage point on everything happening and where this industry is going. We've seen major headlines recently, like the launch of this AI bot Hazel sparked immediate disruption and raised some really fundamental questions of, you know, does AI make advisors obsolete or heck, does it make the role of banks and Broker dealers change altogether. Then came LPL's recent announcement of that partnership with Anthropic, adding a very different dimension to the conversation, especially around how a scaled firm like LPL can thoughtfully and responsibly leverage AI in a differentiated way, because it has been all over the headlines. You know, I'd love for you to unwrap it all for us.

Marc Cohen [8:19] AI is not going to completely displace the role of a financial advisor. What AI is going to do is it's going to change what the role means. How they need to show up. I believe that a financial advisor in the future is going to be supercharged by taking all of these inputs that AI or other developments in the future are going to make available and give them the opportunity to spend more of their time in the moments that matter, sitting knee to knee at the kitchen table or wherever appropriate with their clients, making that come to life. The profile of someone that's going to be successful as a financial advisor probably changes as well. You don't need to be the mathematician or the finance major to be able to be successful in that regard. Instead, you're probably leaning in a little bit more to the human empathy side of things, the psychology aspects of how do you actually show up in those moments where you're able to align with the family who you're serving and the people that you're working with.

Matt Enyedi [9:09] It's like Josh Linkner said to us, the new MBA is the MFA. Our clients very seldom talk to us anymore about, oh, my portfolio outperformed X, Y, Z. Talk about a relationship or a family that they held.

Marc Cohen [9:21] Yeah, well, this gives them the opportunity to focus more of their time there, but it also transforms the way that they might structure their team around them. We're exploring this concept of the advisor office of one right now, where their CSA or the paraplanner or the rebalancer or their portfolio manager inside of their office, maybe just isn't a necessary role anymore in the future, and they have to think about how do they rearchitect that. Where their job becomes far more scalable as the advisor, and the work around them is being done differently.

Matt Enyedi [9:47] And you're seeing exponential change from, oh, this model launched 1 year ago and did X, and oh this model launched 6 months ago and did Y, oh, this model launched 2 months ago, and changed completely. And so how are you and your team staying on top of everything and making sure we can separate. The hype from the real.

Marc Cohen [10:05] When you think about something where a development cycle for a new capability used to take 6 months, and now maybe it's being done in a matter of days or a couple of weeks, it's unbelievable, and that's different than quite frankly we were even at 2 months ago or 3 months ago with our understanding here. Even if the capability is not there today, you have to reasonably expect that it's going to be there before long, and we're looking at that across 4 different distinct horizons. The first one is, um, our own internal operations. So think about our back office, processing of the work that we do, maybe our supervision, the the tech dev world, and how we're building out new capabilities, everything that's kind of behind the scenes, what's the application there? The second is really living into your world or into our business development team, and how do we make sure that Our clients and advisor facing folks are properly empowered to show up, adding greater value in every one of their interactions. Quite frankly, fairly similar to the conversation we were just having about the role of the advisor with their clients. How do we make sure that our teams in those value add positions are showing up in the right spots as well? The third one is into the advisor's office, how do we give our 32,000 financial advisors and the institutions there, how do we give them the tools to be able to accelerate the work they're having and broaden their own impact? And I think there's some really cool opportunities there for us to show up as a partner for, specifically for those independent advisors who maybe don't otherwise have access to the Anthropics and the Cognizant of the world to do it by themselves. And then the fourth one is, into the experience of the end client, into the investor. And how do we think about the transformation of what that investor's experience is in the future, and what are the tools we can put at their disposal, at their fingertips, so that their interactions with their advisors are also that much more valuable.

Matt Enyedi [11:43] It is so wild. I feel like sometimes I'm like, are we reading a Ray Bradbury novel, or are we actually talking about our industry? But change is not new to our industry, as you said, and maybe we can kind of step back to the more normalized change that we've seen, because just as you were getting the RIA business, look. It was part of what looked then like a linear progression. Before 2000, most wirehouse advisors just kind of lived in the wirehouse world, and maybe every 7 to 9 years because they found a better company, they went to another wirehouse firm, and 7 to 9 years later they went to another wirehouse firm, and then you started to see this movement to independence, and folks were starting to break away, and it was largely to the IBD model where it existed, and then about 2005, 2006, you saw this explosion. explosion to the RIA marketplace. And I can remember even some of the custodians at the time, saying the progression looked like employee model to independent BD model, and ultimately when they're all growns up, they go to custodial model. And that played out for a while, maybe even a decade, but we're starting to see that shifting once again, especially against the demographics of our aging advisors, that isn't necessarily the path, in fact, it might not be the path at all that advisors will take from here.

Marc Cohen [12:53] The way that I would think about it, Matt, is you go back to the 2008 to 2015 type of time frame maybe, the RIA business model is kind of that beacon of independence in the marketplace, and over time we started to see that evolve quite a bit, and, Instead of folks launching their own independent RIAs fully autonomously, you saw the emergence and the growth of this independent platform concept, where they'd be able to share some of the back office among other firms, and they'd be able to tap into the capabilities of others to make it that much easier for them to run their independent business. And then you fast forward and you're in 2019, getting around the pandemic in 2020. And you have this influx of capital coming into our space, and the first ones that were targeted by the private equity firms were these platforms, purely because of the scale that they represented and the opportunity that was there. And you saw these independent platforms very quickly, using the financing available from their backer, transform now into more of a W-2 conforming type of model. And I'm speaking in generalities, but broadly speaking, that's the type of trajectory that we saw occur. Well, the challenge there is that now you have these W-2 large aggregators that effectively are, and even in some cases self-identify as a mini wirehouse, and well that's where the advisors ran away from years earlier. And so, that's one challenge, when you look at the RIA space, you've gone through what I believe to be an under-addressed, quiet type of transformation, where some people when they don't pay that close attention, still think of RIA as maximum independence, but when you look at the assets inside of the RIA industry, A significant portion, the majority of those assets are now managed in these aggregated models. On a similar time frame over the last decade or so, you've seen the IBD world evolve, where IBDs felt the pressure to become that much more independent, quote unquote, for their advisors, open their architecture, bring in a bit more, uh, flexibility into their model, whether that was choice of technology, in some cases even choice of custodian and other options that were available. And that was to try to head off the movement towards RIA where those advisors would get that flexibility. Well, here we are now, where you're seeing greater consolidation of the IBD markets and challenges because of their economic structure, in many cases, where they can't continue to invest into the capabilities necessary. You see the RIA movement evolving, and I believe that what ends up coming out of all of this is that advisors still want independence. They still want autonomy and the opportunity to run. Their business, their way, I think you're actually going to see a cycle come through where you're going to see a re-emergence of this independent platform. And maybe there's a convergence of what we've known historically as an IBD and what we've known as an RIA and they actually come together and it's only one thing in the future, and it's just the independent marketplace.

Matt Enyedi [15:35] I think what I hear you saying is, choice is what people wanted, and the structure for how it's delivered, is changing.

Marc Cohen [15:43] Advisors want choice, They want autonomy to be able to serve their clients in the best way possible, without someone saying, you got to sell these products or you're going to make more money if you do this or that, and instead focus on how do I deliver an optimal experience to my client and the greatest value to my client. And I think that when you see, especially the acceleration of regulatory complexity that we've experienced through the Trump administration, Um, I think that all the more reason why you're likely to see fewer and fewer independent RIAs run where they're holding their own ADV and their own registration with the SEC and more of these independent constructs where you're pooling your resources, particularly from a regulatory standpoint.

Taryn Huget [16:20] Just as there were defining inflection points in the independent space like Schwab's acquisition of TD Ameritrade. We saw similar moments in the wirehouse world as well. Uh, the acquisitions of Smith Barney by Morgan Stanley and Merrill Lynch by Bank of America. These weren't just deals. These really fundamentally reshaped advisor experience and culture and our expectations. In many ways, those moves really lit the fuse for the broader industry shifts that followed. I would love your take on this. Can you walk us through what's happening in this W-2 space, because obviously there is so much relevance.

Marc Cohen [16:58] What we've seen with the acceleration of the breakaway movement to independence over the last 15, 16, 17 years. has largely been accelerated because of the industry that's been built up around independence. When you go back to the time frame that Matt was talking about earlier, the 2005s and 2006s, you were talking about a really, really bare bones support infrastructure that existed to help you if you wanted to be an independent advisor. There really wasn't a lot there. Now, we're in a spot where, over the period of time, based on the demands of these advisors who are seeking the structural benefits of the independent model, we've seen a lot more come to. We see more in the way of consultants and operating support, we see more in the way of technology choice and options. Quite frankly, we've seen an acceleration of the banking and the lending capabilities and the investment products that are now available in the independent space. It wasn't long ago that the alternative investments were not available to independent advisors, and you had to be at a wirehouse to be able to place an alternative investment in a client's account. We've seen that completely change. We're in a space where now 70% of advisors who are polled that sit inside of our industry are saying that the independent channel is their preferred channel. We are seeing a shift in the numbers, so wirehouses over the last 5 years have grown 3% annually versus the independent channels growing about 10% annually. And as a result of that, we're seeing the wirehouses themselves start to make different changes, and you're seeing a firm like Wells Fargo leaning in more heavily into their independent construct and trying to figure out how do they participate wholesomely in that business, where they can have the traditional model. But also in the independent space. And I think we'll see what ends up happening over time.

Matt Enyedi [18:32] I wanted to get back to the future of our, our business, which is the future of independence. And there was obviously another seminal moment there last year, LPL's acquisition of Commonwealth Financial Network. And how do you think that acquisition shapes the future of independence and what our advisors can expect from it?

Marc Cohen [18:51] There's been a lot of consolidation across the entire industry, both driven by us. As well as others over the last few years, there's only a handful of remaining traditional IBDs that operate at any amount of scale, um, and Commonwealth was pretty clearly the gem among them. What's been most interesting to me, has been peeling back that onion though, and not only looking at the stats, but starting to understand what really was Commonwealth, and what was driving that. Commonwealth was not operating your traditional IBD model, they weren't operating this model where it was high payouts and go and figure it out. Out by yourself, but rather, Commonwealth is leaning in to support their advisors in a more meaningful way, with financial planning resources and advanced planning resources for complex cases, marketing support, some additional business management support and training for their advisors, and I think that that's ultimately where this industry is heading. And so for us to be able to partner with a premium brand, a premium experience like what Commonwealth had built, is, I believe, a really important component that quite frankly, is building a new chassis upon which the future of the independent space likely continues to evolve. This helps us round out what our spectrum of affiliation might be, so that we can meet the needs of advisors in all different ways.

Taryn Huget [20:03] You know, Marc, we end every episode with an if you could question, but I want this question to sort of round out the conversation that we've been having, you know, building upon those acquisitions we've just discussed, those seminal moments reshaping the RIA and W2 space, it feels like the Commonwealth acquisition could be another defining moment in the evolution of independence. So once we're on the other side of Commonwealth, if you could look ahead and predict the future of independence, what does it look like? And, and really more importantly, how do advisors thrive within that future?

Marc Cohen [20:39] First, if I think about the idea of us as a service provider to to financial advisors, I believe that Our charge is to continue to empower the financial advisor community to be able to have flexibility and optionality in how they serve their clients and how they run their business. And so as a result, I think of ourselves almost as like a platform company well more than anything else, and how do we show up in that way where we're giving flexibility to an emerging growing advisor practice, to the most successful advisor practice, and to the largest institutions. That may exist, to be able to operate on our platform in a way where they're tapping into our tech, and into our business services, and into our wealth support in manners that is flexible to them, and I think that that flexibility is what will allow them to be able to optimize their business. Now when we think about optimizing their business, what does that look like for them? Well, I think we need to go back to the AI conversation, and we need to think about Each of these advisors asking themselves today, what is my unique value proposition? Quite candidly, we're doing it for LPL right now, because we're in such a period of change, where we can't rest on our laurels, and we need to make sure that we're clear who we are as a firm, and what is unique about us, and how do we show up for our clients in a unique way. I think our advisors need to be doing the same thing, and that'll end up informing their hiring decisions and how they structure their team and the decisions that they're making and running their business. Because where they are today is going to be a very different place than where they are in the future, purely based on what's going on around them. And if they're looking to build that sustainable business where the ethos of what they've built is able to be carried on for many, many, many years, I think that's the question that they've got to figure out is how do they surround themselves with the right talent, the right tech, the right partners to be able to make sure that they're living into their vision.

Matt Enyedi [22:20] Brilliant, folks, here's the bad news, things are moving really fast and they are as uncertain as they've ever been. Here's the good news, they've always moved fast, and they've always been uncertain. I think what the truly good news is though, is folks like Marc are here to help navigate it, help partner with you, and help you lead all the way through it. So Marc, thank you so much for joining us today.

Taryn Huget [22:40] Thank you, Marc. We are so glad you started at this industry at 17 years old. You've been thriving since.

Marc Cohen [22:47] Thanks, Matt. This is fun. Thank you guys.