the path to independence
Inside the movement gripping the offshore advisory world
The times we live in

The international wealth management industry has long been the bastion of the world’s largest banks. But, as in every industry, disruption is always lurking in the shadows ready to upset the status quo.

The independent advisor movement has been slowly but surely chipping away at wealth management giants’ dominance and is having a profound impact on the offshore wealth industry’s landscape.

Increasing numbers of international advisors are deciding to leave the relative comfort of renowned banks to embark on their own venture, a trend that has been accelerating over the past couple of years. What has been driving this trend? And what does it mean for the future of the industry?

In this special report, we attempt to answer these questions and provide some insight into what awaits those international advisors who decide to take the plunge and go independent.

In our first chapter, we look at how recent shakeups within the US offshore and Latin American wealth management industry essentially laid the foundations that allowed for the rise of the independent advisor movement.

One of the movement’s key protagonists – independent advisor platforms – are the focus of our second chapter. We look at how these platforms are managing to attract some of the top international advisor talent and how they are filling the gap left by the wirehouses that have been pulling back from the international wealth industry.

We then hear from international advisors who have set up their own RIAs. These intrepid wealth managers reveal the challenges they faced when going solo – from setting up their own Wi-Fi to finding a services provider.

Opening your own wealth business is undoubtedly exciting, but a wrong move when exiting your firm could land you in hot water with your former employer. Our legal columnist Rebecca Leon of Baker McKenzie has put together a handy guide to help advisors properly plan their departure and avoid costly legal battles.

We conclude with a Q&A with the offshore industry’s most prominent custodian, BNY Mellon’s Pershing. The group’s managing director of global client relationships, John Ward, reveals how his firm has been adapting to the rise of the independent international advisor.

This industry snapshot may not contain all the answers you seek but we hope you find it useful and insightful.

Growing trend
The Story So Far
Mind the gap
The Platforms
Taking flight
The Advisors
Goodbye wirehouse,
hello courthouse?
The Legal Risks
Pershing in the hot seat
The Custodian Corner
the path to independence
The Story So Far
The independence business model is winning over increasingly more advocates in the offshore wealth world, especially as the industry’s biggest players continue cutting their international coverage
by Atholl Simpson

Financial advisors are choosing to go down the independent path more than ever before.

According to Cerulli Associates, the market share of the four major wirehouses of the US wealth management industry – Merrill Lynch, Morgan Stanley, UBS and Wells Fargo – has declined from 50% in 2008 to 32% today. A good portion of that market share has been scooped up by Registered Investment Advisor (RIA) firms and independent broker-dealers as financial professionals have been increasingly attracted by the freedom these structures afford them.

In 2018, data compiled by the Aite Group showed assets under management of independent broker-dealers and RIAs had equaled that of the US wirehouses at $7.18tn. They have since likely surpassed them.  

Although the above figures cover the US domestic advisor market, the same trend toward independence has become ubiquitous in the US offshore wealth industry.

The last few years has seen a growing number of international advisors catering to offshore clients opting to ditch their wirehouse credentials and take control of their client books. This trend has especially accelerated over the last two years as the industry’s largest banks have decided to cut back their international wealth operations or raise the requirements for opening new international accounts.

In the past, independence was considered synonymous with losing the backing of a big brand and meant no longer having access to crucial research and investment products. Today, technological innovations and a changing industry landscape has made the transition to the independent model a more attractive option to many.

‘All of the obstacles that kept advisors from going independent started to be solved by the industry. The industry just evolved and came up with solutions for what type of entity you need, who’s going to do your compliance, your billing and your payroll, and the investment and lending solutions,’ said Vince Fertitta, president of independent advisor platform Sanctuary Wealth.

Fertitta, who worked at Merrill Lynch Wealth Management for more than 20 years until he joined Sanctuary in 2017, knew it was only a matter of time before the independent trend gripping the US domestic industry reached the offshore wealth management industry.

‘International advisors have now taken notice that some of their domestic colleagues have started to adopt the independent model. The next step in the evolution is just to make that same model available to international advisors. It isn’t all that different, it just has some nuances that need to be addressed,’ Fertitta said.

There have been three main pathways for international advisors wishing to join the independent movement: join a smaller RIA, launch their own RIA, or sign up to an independent advisor platform.

The third option has proven a popular alternative for many wirehouse international advisors as it allows them to launch their own RIA business while plugging into the infrastructure of a larger firm that has its own broker-dealer and a platform that grants them access to a wide range of back-office, research and compliance services and investment management solutions.

‘The appetite for independence has certainly increased as advisors have begun to realize they can do better in that environment and that they won’t have compliance breathing down their necks,’ said Alfie Oliva, head of Miami-based OIG Wealth Management, which is part of independent advisor platform Kovack International Wealth Management.

‘It’s also just becoming easier to do. It gives you a lot of nimbleness rather than being in a place where you offer whatever your firm wants you to. The large banks have also slowly but surely been chipping away at their international businesses and making them less of a welcome environment for advisors,’ Oliva said.

‘All of the obstacles that kept advisors from going independent started to be solved by the industry. The industry just evolved and came up with solutions for what type of entity you need’
Vince Fertitta, Sanctuary Wealth

Service cuts

This is another reason independence has become a growing topic of conversation among international advisors. Many recognized financial institutions have been retreating from the US offshore and Latin American wealth industry over the last few years, forcing some of their advisors to find new homes for their clients.

Smaller RIAs and independent advisor platforms have proved a good refuge for these firm’s international advisors and the independent firms have been reaping the benefits by adding wirehouse talent to their advisor crews while increasing their assets under management.

International banks such as Barclays, RBC and Credit Suisse have left the offshore wealth management market altogether, while others such as Merrill Lynch, Morgan Stanley and UBS have taken measures to cut back their international coverage.

Merrill Lynch was one of the first movers after it announced in 2015 it was raising its minimum threshold for new international accounts to $2.5m, that figure rising to $5m for investors in some Latin American countries it deemed as risky jurisdictions.

Morgan Stanley was next in line – the firm deciding to raise its international account minimum from $500,000 to $2m in 2019. Advisors at the wirehouse were told at the time they would only receive the entirety of their payouts from new accounts if they hit the new benchmark and needed to drop any clients deemed too small.

One year later, UBS surprised many of its Latin American advisors by announcing it was cutting ties with its Venezuelan clients after an internal review deemed them too risky to hold on their books.

‘Some wirehouses, for example, do not allow advisors to open accounts for clients based in European countries. In addition, the wirehouses systematically reduce financial advisor payout by deferring more and more compensation and through annual grid adjustments which always result in lower net pay for the financial advisor,’ said Ray Grenier, CEO of independent broker-dealer and advisor platform Bolton Global Capital.

However, the event that sent the offshore independence movement into overdrive this year was when Wells Fargo announced it was pulling out of international wealth management.

The result was more than 330 of the group’s international advisors and their more than $40bn worth of client assets were now looking to either find another wirehouse to join or make the jump to an independent advisor platform.

Lockdown impact

The Covid-19 pandemic has also had an unexpected impact on this independence movement. As the world went into lockdown in March 2020, advisors who started working from home soon found they had a valuable commodity at their disposal – time.

Many international advisors took advantage of this time to take stock of their careers with some deciding to launch their own businesses on independent advisor platforms, resulting in numerous resignations from wirehouses like UBS and Morgan Stanley in the second half of 2020.

‘The pandemic and the lockdowns have accelerated the shift to the independent business model. Financial advisors have learned how to conduct business with clients remotely without the face-to-face contact,’ said Bolton’s Grenier.

‘Instead of spending hours commuting to the office, financial advisors can use this time more effectively to conduct client business. In fact, most downtown office locations remain largely unoccupied more than a year after the pandemic began.’

Having this time to ruminate led some advisors to the conclusion that they did not need the brick-and-mortar offices and services of the large banks to effectively carry out their jobs.

‘I think that what the pandemic did, given the fact that everybody was at home was it got advisors questioning why they are giving their employer 40, 50 or 60% of their revenue, what they are getting from it and what they are doing for them,’ said Sanctuary’s Fertitta.

‘They’ve realized they can pay for their own support staff, the layers of management have not turned out to be as valuable as maybe they thought they were and, in some cases, maybe they’re even an obstacle. So they’ve been exploring.’

‘The appetite for independence has certainly increased as advisors have begun to realize they can do better in that environment and that they won’t have compliance breathing down their necks’
Alfie Oliva, OIG
the path to independence
The Platforms
Independent advisor platforms are attracting a growing number of international advisors to their networks. What is driving this growth and what are the benefits for advisors who opt for this independent model?
by ATHOLL Simpson & Daniel Gil

The entrepreneurial spirit is strong in the advisory industry, with a growing number of international advisors now making the jump to independence.

But launching an RIA can prove a time-consuming and costly venture that also requires negotiating crucial third-party agreements with a range of service providers.

One option that has been growing in popularity in the US offshore wealth management world in recent years is the independent advisor platform. These platforms are commonly operated by companies dually registered as RIAs and broker-dealers – known as hybrid RIAs – that tend to adopt a multi-custodian structure, which provides international advisors with access to a wide array of third-party investment products.

For international advisors with mid-sized client books, these platforms can offer the best of both worlds: the freedom to carry out their business the way they see fit while also offering up a range of back-office, administrative, compliance, and brokerage services.

The growing success of these independent advisor platforms can also be partly attributed to an ongoing trend gripping the offshore wealth management industry, which was outlined in the previous chapter. Namely, the decision by many large banks and wirehouses to cut back their Latin American wealth management coverage or exit the industry altogether.

In a growing number of cases, the impacted advisors have been turning to these independent platforms for refuge as they tend to not have minimum account size requirements or country restrictions like their larger peers.

‘We’ve talked to many wirehouse advisors, especially ones that have been doing this for a while,’ said Daniel de Ontañon, CEO of Miami- based Insigneo Financial Group, the largest independent advisor platform catering solely to international advisors.

‘They don’t want to go to another wirehouse that then tells them they’ve decided that they no longer like international clients or that they’re no longer going to serve a particular jurisdiction.

‘They feel that the independent model and especially firms that are committed and primarily focused on these abandoned clients are a good way of ensuring they don’t find themselves in this situation again in the future.’

Finding a safe refuge for their clients where they can seamlessly continue catering to their needs is undoubtedly a key reason international advisors are being drawn to these independent platforms. Another is the potential for them to markedly increase their earnings.

While a typical international advisor at a large wirehouse or bank will receive around 50% of the revenue they generate as their pay, the same advisor on an independent platform can take home 70-85%, according to industry estimates. The end amount they earn from their business ultimately varies case by case, depending on their overhead costs and platform fees.

‘Without charging the client anything more, the advisors are going to earn more money. But they’re doing it for the freedom and flexibility to run their business and to interact with their clients in the manner in which they want,’ said Vince Fertitta of Sanctuary Wealth.

‘And that’s really the driving force. It’s not the economics as much as it is that they know what their clients want.’

That said, the ‘economics’ definitely play in the platform’s favor as it is a surefire way to attract top advisor talent.

Hybrid world

Although efforts are being made in the offshore wealth management industry to promote the fee-based advisory model, the majority of Latin American clients still tend to have commission-based brokerage accounts. For this reason, the firms running independent advisor platforms need to be hybrids with both brokerage and advisory services in order to attract the best international talent.

‘It’s very important that you have a broker-dealer and that you’re still able to do brokerage transactions,’ said Fertitta, who co-heads Sanctuary Wealth’s independent platform for international advisors, launched earlier this year.

‘The products that are mainly used for [international clients] are offshore mutual funds and ETFs, and those are available through custodians and from an advisory standpoint. But oftentimes, the international client owns shares or some other investment structures that are not advisory and need to be transacted from a brokerage standpoint.’

The fee-based advisory model has, however, been gaining traction among Latin American clients, platform leaders said.

‘Advisors don’t want to go to another wirehouse that then tells them they’ve decided that they no longer like international clients or that they’re no longer going to serve a particular jurisdiction’
Daniel de Ontañon,
Insigneo Financial Group

‘It used to be on the international side that 90% [of accounts] were transactional and maybe one or two clients might have done some fee-based accounts. But now it’s pretty much a 50-50 split coming over,’ said Carlo Bidone, director of recruitment at independent hybrid RIA Kovack Financial, which launched its international advisor platform in the summer of 2019.

Insigneo’s de Ontañon estimated that today’s brokerage/advisory split was lower but pointed out that his firm’s fee-based advisory assets were growing at a faster rate than its brokerage assets, with the latter still making up the bulk of their accounts.

‘The average advisor that we have hired from wirehouses over the last 18 months tend to have a 30% to 40% advisory book versus the 15% to 20% that they traditionally had before,’ said de Ontañon.

‘I think that the offshore client and the Latin American client, in particular, continues to be a little bit old-fashioned. Sometimes it’s a bit harder for them to understand how the advisory fee can work better for them than the transaction fees.’

Fear of change

No matter how you try and sell it, moving from an established bank or wirehouse to running your own independent business is a daunting experience.

The independent advisor platform leaders Citywire spoke to said that a big part of their interactions with potential new international advisor recruits was focused on allaying any concerns they may have over making the jump.

‘The biggest concern of all financial advisors who are contemplating a change in firms is “will my clients follow me?”,’ said Ray Grenier of Bolton Global Capital, which caters to both independent US domestic and international advisors.

‘Once the financial advisor resigns, the firm holding the account will usually assign a team to salvage the business. This is true whether the change involves moving the account to another wirehouse, to a regional or to an independent firm.’

Grenier had this advice for advisors considering going independent: ‘The advisor needs to get client “buy-in” before making the move to another firm. This involves explaining the reasons why a change may be necessary, the available options, and the potential benefits.’

According to industry estimates, an international advisor can lose around 20% of their client book when they make the transition to independence. Richard Calhoun, CEO of Laidlaw Wealth Management, which recently began work on its own independent international advisor platform, said that advisors need to be prepared for this eventuality.

‘It would be naive to think that you could keep every client,’ said Calhoun. ‘There are clients that are going to say that they need to be with a big bank; that if they don’t have their accounts at JP Morgan or Morgan Stanley or UBS they won’t be able to sleep at night.

‘I get it, and there are financial advisors that are going to have to make a decision: are those clients so big as a percentage of my revenue that I have to keep them on those bank platforms, or do I have some flexibility? That’s really what the final decision is going to be.’

LatAm case

In Latin America, advisors and private bankers have also begun to realize the benefits of the independent model.

The independence trend has experienced strong growth over the past decade in the region as wealth management services traditionally offered by large banks and wirehouses have become increasingly more accessible to smaller competitors, according to a number of Latin American wealth industry veterans.

However, such growth has also led to regulatory shortfalls in some of Latin America’s largest and most developed markets as financial agencies play catch up with the independent industry.

‘Banks have been reducing their own sales force and cost structure, effectively handing this service to independent advisors’

Such lapses in regulatory oversight have complicated matters to some degree for the region’s independent advisors and wealth shops, but their numbers continue to grow as they are attracted by higher earning potential and greater work flexibility.

Diego Pozzi, managing director of Uruguayan broker-dealer and advisory firm Pro Capital, has seen the growth on his own independent platform firsthand. Between 2017 and 2021, the number of independent advisors on Pro Capital’s platform has gone from 30 to more than 100, according to Pozzi.

‘Private bankers have begun to realize that by using an efficient and secure platform, they can offer their clients the same service or better than that of the bank where they work,’ he said. ‘By doing this, many of their clients would also accompany them [to their new business].’

Pozzi also attributed the recent growth of Pro Capital’s platform to agreements with established custodians like Pershing, the most popular custodian in the offshore wealth industry. Pershing’s strong ties and agreements with many of the region’s larger banks have allowed financial advisors who decided to leave these renowned institutions to easily transition their accounts over to independent platforms like Pro Capital, he said.

Martin Sanchez Bazan, a director at Argentine wealth and asset manager Balanz Capital, believes that the growth of the region’s independent advisor industry is also intrinsically linked to the way Latin Americans do business.

‘Wealth management is a very family-oriented business in Latin America, so often a client doesn’t transition a single account with an advisor – it’s the entire family’s wealth. In the same sense, when an advisor leaves a private bank or wirehouse, if their family is there with them, they will do the same,’ he said.

Bazan, who previously spent a decade at AndBank’s wealth business in Uruguay, added that Latin America was fertile ground for the independent model as many of the region’s banks were forced to make cuts to their workforces due to the pandemic.

‘They’ve missed opportunities and many advisors have continued to look for ways to develop their businesses during the ongoing health crises,’ he said.

The pandemic has also led more advisors to consider the independent model, as demand for financial advice has increased after the region’s economies became some of the hardest hit, said Pablo Salcedo, CEO of Chilean independent wealth firm Value Advice Partners.

‘In the context of increased uncertainty, people began searching more and more for financial advice, and the ability to do the job remotely made things much more simple,’ he said.

Salcedo, a 33-year industry veteran, added that one of the greatest boons for the independent model in Latin America has been that large financial institutions have been scaling back their international businesses as part of cost-cutting efforts.

‘With the advent of global advisory services and technology in the space along with a growing education in finance in Latin America, people have become more familiar with the way banks charge customers and operate... So, what we’ve seen locally, even though this is an international trend, is that the banks have been reducing their own sales force and cost structure, effectively handing this service to independent advisors,’ he said.

Despite this growth, Salcedo believes local regulators still have a lot of catching up to do to lend credibility to independent advisors and wealth shops.

‘Regulation is still in its early stages in Chile and Latin America and we’d like to think it will come soon,’ Salcedo said.

the path to independence
The Advisors
Four international advisors share their experience of going independent and the biggest challenges they faced ridding themselves of their wirehouse shackles
by Daniel Gil

The idea of going independent holds an undeniable appeal. Advisors can stop taking orders from bigwigs above them, become their own bosses, and cater to their clients the best way they see fit.

This rather romantic notion comes with some tangible benefits as well: Advisors can capture a greater portion of the revenue they generate, build their own team, and decide what direction they want to take their business.

But as the advisors we spoke to have learned firsthand, it’s one thing to talk about going independent; it’s quite another to actually do it.

Leaving the seemingly comfortable wirehouse life to launch your own business comes with its own set of unique hurdles.

‘The biggest challenge after leaving was not knowing what I didn’t know,’ said Miguel Sosa, the head of Miami-based RIA Premia Global Advisors, who founded his company in early 2016 after more than 33 years at Merrill Lynch.

‘It’s like you’re used to driving your car, you’re comfortable doing that, and then someone says to you, “you know, I’m pretty sure you can drive that 747 airliner.” So, the initial challenges are going from an infrastructure you will have been used to to setting one up yourself and which you’re now responsible for. I mean, you’re really setting up your very own business.’

The costs and processes previously handled by an employer are now firmly in your hands as an independent, said Sosa. These can include the crucial undertaking of setting up compliance and legal units to the more menial tasks of sorting out the wifi and air conditioning for your new office.

This is why just a few months after leaving Merrill Lynch to set up Premia, Sosa partnered with RIA platform services firm Dynasty Financial Partners. The partnership with Premia was Dynasty’s first with a wealth management business catering to international clients and gave Sosa a solid foundation to establish and run his company.

‘One of the bigger questions became who I would partner with after becoming independent and that comes down to what you think you will need as you create your business. You don’t want to be caught in a position where you think, “oh, maybe I needed that,” and you don’t have it,’ he said.

Sosa recalls one moment sitting at his desk at his newly-launched business when he was trying to figure out how to communicate to his clients that he was now a fully independent advisor.

‘I’d gone through the process of setting up the firm physically and I’m ready to go, so I’ve got to tell my clients I’m not at Merrill anymore. I asked myself who’s going to approve my letters in the compliance department. I called my compliance officer, who was outsourced at the time, and they asked me, “Miguel, who owns Premia?”. I got to approve everything. And that was that,’ he said.

Breaking the news

However, Sosa knew that one of the biggest factors for his firm’s success was not within his control: what his clients would think of his decision and whether they would decide to stay with him.

‘There’s a motto I live by in the industry, which is: “He who is closest to the client wins.” So if I have a trusting and long relationship with them, then we’re going to be bound by that and they’ll come with me wherever I go because we have that kind of relationship,’ Sosa said.

‘There’s a motto I live by in the industry, which is: “He who is closest to the client wins”’
Miguel Sosa, Premia Global Advisors

For the most part, client retention was only an issue among his institutional clients, Sosa said. His coverage in that specific area mostly dealt with offshore pension plans, where many of them required familiar brand names to do business with.

‘They need the name so that when the firms present a partnership to say, shareholders or other stakeholders in the business, it’s known. Premia Global Advisors was new at the time,’ Sosa said.

While clients’ reactions can prove crucial to the future of an advisor’s solo success, in some cases, clients can also be the driving force behind their decision to go independent.

This was certainly the case for Juliana Moreira, who after 12 years at Indosuez Wealth Management – the US subsidiary of French bank Crédit Agricole – decided to break away early last year to form Miami-based multi-family office Larch Capital Partners along with her two team members Henrique Da Fonte Filho and Rita Tavares.

‘Our clients were asking us for certain services that we were not able to deliver… so [independence] became a necessity that came to us and then the movement itself was very natural after we decided to do it,’ said Moreira.

‘We were then able to give them access to products which we would never have been able to before.’

The freedom to pick and select your own products without having to toe the company line and promote a wirehouse’s own internal investment strategies is a key reason the international advisors Citywire spoke with decided to set up their own businesses. Their independence means they can now deal directly with mutual fund providers and cut most of the red tape associated with onboarding a fund for their clients.

Additionally, RIAs and advisors using broker-dealer platforms can choose who they custody assets with, giving them a range of options to do business in jurisdictions across Latin America, a region where many of the industry’s leading wealth management firms have introduced restrictive client account requirements.

It’s not uncommon to have agreements with upwards of a dozen different firms, depending on how diverse an independent advisor’s client book is, Moreira said.

‘You expand in terms of options and number of providers – that’s also something which can be overwhelming; there are so many options, it’s hard to know where to begin,’ she said.

As such, the move can present an opportunity for an advisor’s clients in terms of what services they have access to and how they can invest their wealth.

However, like Sosa, Moreira said that the biggest hurdle for her and her team, at least initially, was building the business itself.

‘It’s very demanding and takes a lot of time. It’s everything from building the space you’ll work in to the website you’ll use,’ she said.

‘One of the most exciting things for us, though, has been the search for talent. Being able to build a great team of people from scratch has been amazing and bringing in new talent has been a really nice surprise.’

On the other hand, having team members go from being colleagues to business partners can also present its own challenges, Moreira said.

‘You’re going to have to have a lot of difficult conversations and put all your cards on the table if you’re going to succeed in order to avoid any misunderstandings about what it is you and your team are building,’ she said.

‘A big part of switching was eliminating conflicts of interest for me’
Mariana Foerster, MRF Advisors
Fresh outlook

Advisors weighing the prospect of independence will have to decide whether to set up their own RIA and work as a fiduciary advisor or join an existing broker-dealer network, which typically provides both brokerage and investment advisory services. Mariana Foerster opted for the latter.

The Miami-based advisor joined Insigneo’s independent advisor platform to set up her own business, MRF Advisors, after spending the previous four years at wealth shop Loyola Asset Management.

Foerster said one of the biggest challenges was explaining to her clients what the new structure meant for managing their money.

‘You explain to them all the changes that your new position will mean for them, the most important being how you are charging them based on fees rather than commission,’ she said.

Some of Foerster’s oldest clients had known her since she was a junior advisor at Deutsche Bank’s wealth management business in Miami, which she joined in 2008. The German bank sold the wealth unit to Raymond James in 2016 which led to Foerster moving to Loyola AM.

‘The first year is difficult because clients are questioning the move, but then they can see what you provide them, and then, you’re too cheap,’ Foerster said.

Opting to join Insigneo’s independent network was a simple decision for Foerster as many of the services her clients had enjoyed when she was at Deutsche Bank were now available to them in her new business through Insigneo’s platform.

‘I welcome advisors going independent and not falling back on what’s comfortable’
Lisa van Walleghem, Maximai Investment Partners

‘For me, a big part of switching was eliminating conflicts of interest for me, and understanding that you don’t have to make trades to earn money each month was so liberating. There’s no amount of money out there that can make you understand how that freedom feels,’ Foerster said.

While choosing specifically who to partner with when going independent is certainly important, partnership can come in many different forms. Both options have their respective pros and cons but each still gives an advisor more freedom and flexibility than remaining at an existing financial institution.

It can ultimately come down to how far an advisor is willing to step outside of their comfort zone, said Lisa van Walleghem, CEO and founder of Miami-based RIA Maximai Investment Partners.

‘A lot of people who talk about being independent are not really independent,’ van Walleghem said. ‘When you’re an independent – an RIA – you’re 100% fiduciary and transparent with your fees, so I think that if the client has an option to be in a broker-dealer relationship then that’s not true independence. When an advisor has that choice, some are deciding to remain within the same brokerage and comfort zone of the commission world.’

Like Sosa, van Walleghem left Merrill Lynch in 2016, after 23 years at the firm, and also chose Dynasty Financial Partners to assist in setting up her business.

In fact, it was partly Sosa’s success in making the transition to independence that prompted her to make the move, van Walleghem said.

‘I had a lot of respect for Miguel in doing this, so I followed him because he was so successful at Merrill Lynch. So, when I was ready to move, he explained things to me and my team in a very helpful way,’ she said.

Finding helpful guidance was incredibly important to help van Walleghem set up her business, she said.

‘I highly recommend hiring a consultant that helps you get yourself set up. That also becomes something you can relate to your clients with. Many of them are business owners and they understand when they’re talking to someone who has also put their own money up to create a business,’ she said.

Even before deciding who or what company to partner with, van Walleghem said that the most important step a breakaway advisor can do is to research and explore the independent space first.

‘I welcome advisors transitioning to independence and not falling back on what’s comfortable,’ she said.

the Path to independence
The Legal Risks
Advisors could find themselves on the losing end of a court battle with former employers or regulators if they don’t take appropriate steps before going independent, our legal columnist writes
by Rebecca Leon

Thinking about leaving your firm can be an exciting decision, but such a move requires careful planning.  

Nearly every day there is a headline about advisors leaving wirehouses to join an independent broker-dealer or to set up their own businesses.  

Unfortunately, sometimes those moves lead to regulatory actions and lawsuits against advisors who failed to transition properly, as well as actions against their new employers. While every situation is different, here are some legal considerations to think about.

Breaking protocol

Advisors must consider their commitments to their current employer, including whether their firm is part of the Broker Protocol, their internal policies, and any agreements or offer letters they signed that may have non-solicitation and non-compete clauses.

Over the last few years, some firms have left the Broker Protocol, generally limiting the amount of client information advisors can take with them. This shift has led to an increase in litigation risk for advisors seeking to change firms. For example, the former employer may file a temporary restraining order in court to stop an advisor who recently resigned from soliciting their clients if the former employer feels the advisor wrongfully took client information. While clients always have the choice of which firm to work with, the advisor’s former firm may be entitled to recover damages if it’s determined that the information was wrongfully taken or the advisor breached a non-solicitation agreement.

Damages and harm to the advisor’s reputation can be significant. Advisors leaving for new firms should determine what information they can take with them, and whether, when, and how they can reach out to their former clients.

‘Advisors can find themselves with a blemished record that is accessible to the public through BrokerCheck’
Regulatory scrutiny

In addition to filing private legal actions, an advisor’s former firm may also mark their U5 termination notice with violating various laws and firm policy. Such actions can lead to regulatory inquiries. For example, the handling of client information is heavily scrutinized by the SEC and Finra for compliance with US privacy laws.

Advisors taking such information may not only be in violation of US laws, they may be in violation of foreign privacy and consumer protection laws that could subject them and their new firm to foreign regulatory inquiries and private lawsuits outside the US.

The solicitation of foreign resident clients to move to the advisor’s new firm may also violate foreign law, which could lead to fines and other penalties. All of these infractions may be reportable on the advisor’s U4 registration notice.

Even advisors with the best intentions of seeking to continue servicing their long-time clients can find themselves with a blemished record that is accessible to the public through BrokerCheck.

Of course, being immersed in private litigation and regulatory inquiries is not the way any advisor wants to begin a new job.

Jumping the gun

When engaging in preparation activities related to a transition, advisors should consider if conducting such activities before they leave their firm could be considered outside business activities under Finra rules or under their current firm’s policies, potentially requiring reporting to the firm and on the advisor’s U4 form. Failure to report when required can lead to litigation with the former employer, negative comments on the advisor’s public record, and regulatory fines and sanctions.

Advisors working outside the US who will move to a firm without an established office in the foreign jurisdiction should consider whether they will become a Finra branch of the new firm or whether they will work within the strict confines of a branch office exemption. They also must consider if their activities in the local market bring the new firm into the jurisdiction for licensing, tax, employment and other purposes.

Firms and jurisdictions differ on what advisors can take with them to their new job, how they can communicate with clients about changing firms, and the types of activities they can engage in prior to leaving the current firm.

‘Transitions occur frequently without issue, but a smooth one takes time and careful planning’

Advisors should not just begin emailing, printing or faxing (yes, it still exists) client lists to their personal email or home, or call or email clients to tell them about the exciting change. Not only could this result in litigation and regulatory scrutiny, advisors may inadvertently make their clients witnesses, who could be called upon to testify against them or to provide information to regulators. This can be a fast track to losing clients, and a career.

Prior to taking any actions ahead of a transition, advisors should review their current firm’s policies, their employment or independent contractor agreements or offer letters, including any confidentiality, non-solicitation and non-compete agreements, and develop a clear understanding of applicable regulatory limitations and risks.

Transitions occur frequently without issue, but a smooth one takes time and requires careful planning.

Rebecca Leon is a partner at law firm Baker McKenzie, focusing on legal and compliance matters for US wealth management firms, broker-dealers, and banks that cater to offshore clients. Baker McKenzie attorneys Jennifer Connors and Gavin Meyers also contributed to this article.
Pershing in
the hot seat
the Path to independence
The Custodian Corner
As the main custodian and clearing company for international advisors, BNY Mellon’s Pershing plays a crucial role within the offshore world. We collated questions from Citywire readers and put them to John Ward, Pershing’s managing director of global client relationships, throwing in a couple of our own for good measure to find out how the firm has been adapting its services to the independence trend.
How committed is Pershing and its parent company, BNY Mellon, to supporting international business?

BNY Mellon operates in 35 countries and has an extensive global footprint across all business lines, including Pershing. Pershing continues to invest in our international business, particularly across EMEA and Latin America, where we are experiencing strong demand from clients.

Independent advisors serving offshore clients have very similar needs to advisors serving US-domiciled investors. Our commitment to serving this segment has enabled us to make the investments to  support the technology and suite of solutions for both US and non-US investors.
With consolidation in the international broker-dealer (IBD) and RIA space and the diminishing number of potential clearing relationships, does this make the international business more attractive as a growth opportunity?

International wealth management is a focus for Pershing, and Latin America is one of the fastest-growing segments of our business. As the investable wealth requiring financial advice in Latin America grows, we anticipate continued opportunities in this market.
Are there any countries or regions where Pershing is planning to discontinue servicing clients?

We currently do not have plans to exit the jurisdictions we are in. We are pleased with our current international footprint and continue to invest in our international businesses to expand our addressable market and deliver the technology and solutions necessary to support our clients.
‘We are deepening our integrations with key providers on our platform to bring clients more choice, more flexibility and better efficiencies’
How much guidance does Pershing give independent advisory firms and IBDs to help them implement their own compliance and anti-money laundering (AML) procedures?

While we provide our clients with a number of tools to support their compliance efforts, we do not provide specific guidance on implementation of compliance procedures. However, we think sharing information and educating our clients on best practices and current regulatory expectations is an important path of support.

The tools we offer range from technology and reporting tools, to help with clients’ transaction monitoring, asset movement, AML and other responsibilities, to data files for populating proprietary or third-party tools.
What new investment solutions is Pershing planning to launch in the near future for international advisors?

We recently launched our Offshore Managed360 platform, Offshore Flex mutual fund solution, integration with alternative investment platforms, CAIS and iCapital Network, and relaunched our LoanAdvance solution to offer advisors a securities-based line of credit that can be used for clients’ personal or business needs.

We have also invested in digital enablement that supports client onboarding, mobile solutions for advisors, and the electronic delivery of investor materials. Further, we continue to make enhancements to our advisor platform, NetX360, to strengthen the user experience and make technology more frictionless and effortless to use. To that end, we are deepening our integrations with key providers on our platform to bring clients more choice, more flexibility and better efficiencies.

We recently announced bi-directional integrations with Orion and have more of these deeper integrations in the works.
What are some of the key trends you have noticed within the independent offshore advisory industry?

One of the key trends we are observing is that our clients’ use of technology is evolving, as their needs become more sophisticated and nuanced.

Independent offshore advisors are increasingly looking to build their own unique client experience and are moving away from consuming out-of-the-box technology toward being integrators of the technologies and solutions that best serve their clients and business goals.