Big-firm brokers up for grabs

And some of those despondent representatives are making inquiries right to the top.

"I got calls this morning from people who are just fed up," said Chet B. Helck, president and chief operating officer of Raymond James Financial Inc. of St. Petersburg, Fla. "I'm getting calls, and I usually don't get those calls."

Mr. Helck stressed that Raymond James, which has 4,716 brokers and advisers across various business channels, is seeing interest from advisers with a variety of firms, not just Merrill Lynch & Co. Inc. "The more this dislocation occurs, the more it really validates our business model," he said.

In fact, the heavy-hitting advisers he chatted with were really looking for Mr. Helck's boss. "They actually called for [CEO and chairman] Tom James, but he's out of town," Mr. Helck added.

With the collapse of Wall Street and last week's sale of New York titan Merrill Lynch and intense speculation over the fate of Morgan Stanley, independent broker-dealers and custodians for registered investment advisers have a clear opportunity to dominate the financial advice business.

"Many advisers who have been entertaining the idea of going independent will see this as the right time to do so," Alois Pirker, an analyst with Aite Group of Boston, wrote in a note last Thursday.

Bank of America Corp.'s announced acquisition of Merrill Lynch last week has changed the playing field, he noted.

"Firms such as Fidelity [Investments], Charles Schwab [Corp.], E*Trade [Financial Corp.] and Pershing [LLC] have programs in place to help these advisors start up as registered independent advisor firms," Mr. Pirker wrote. "Breakaway brokers also typically manage to take a large share of their book of business with them. Bank of America risks losing top producers as well as clients."

Bank of America, of course, wants to keep Merrill brokers in their seats.

Merrill stockbrokers are "the crown jewel of Merrill. It's the heart of Merrill. We will keep the name and keep the organization intact," Kenneth Lewis, Bank of America's CEO, said in a conference call with reporters last Monday.

A spokeswoman for Merrill Lynch, Selena Morris, would not comment for the story.

Wall Street and the giant wirehouses, with Merrill Lynch the biggest and boldest among them, has long towered over others in the industry when working with wealthy people's money.

Veteran wirehouse brokers clearly produce more revenue than experienced reps affiliated with an independent broker-dealer.

Subtracting low producers such as independent reps who primarily sell insurance, the average independent rep produces between $250,000 and $300,000 in fees and commissions, said Philip Palaveev, president of Fusion Advisor Network in Elmsford, N.Y.

Meanwhile, their counterparts at wirehouses generate $500,000 to $600,000 in fees and commissions, he said.

But the independent broker-dealer industry and the RIA industry have clearly grown over the past few years.

For example, there were 14,451 registered investment advisory firms managing around $1.4 trillion in 2007, versus 11,745 managing $950 billion in 2005, according to Cerulli Associates Inc. of Boston.

And when Merrill Lynch said last week that Bank of America of Charlotte, N.C., was buying it for $50 billion, it was the once-in-a-lifetime event that could shock the investment bank's 16,690 brokers into fleeing, if not right away, eventually, industry executives and analysts said.

And that would be to the direct benefit of independent broker-dealers and the custodians who hold the assets of registered investment advisers, observers said.

"I'll tell you, the phone is ringing more than it's ever rung, especially in the last 48 hours, and it's Merrill brokers," said Adam Antoniades, CEO of First Allied Securities Inc. of San Diego.

He was speaking last Wednesday in New York at an InvestmentNews roundtable meeting of key industry executives.

"I think the last 48 hours has served as a tipping point for all those people who weren't sure whether independence was right for them," Mr. Antoniades said. "I think, finally, it's tipping them over the edge. We all know advisers move because of an event, and this is an event that's going to cause a lot of them to call us."

One clear winner will be Schwab Institutional of San Francisco, which currently works with 5,500 registered investment advisers who control $575 billion in client assets, observers said.

"As we saw after the Bear Stearns [Cos. Inc. of New York] sale to JPMorgan [Chase & Co. of New York], we would expect the merger of Merrill with the Bank of America to trigger a sharp increase in the growth rate of Schwab's independent advisor business as Merrill brokers use the merger as an opportunity to establish their own firms," Brad Hintz, senior analyst with Sanford C. Bernstein & Co. of New York, wrote in a research note about Merrill Lynch last Monday.

One industry executive put it more bluntly during the InvestmentNews meeting.

"This is beautiful news for Schwab," said Eric Schwartz, president of independent brokerage firm Cambridge Investment Research Inc. in Fairfield, Iowa. "I'm sure there is a big party going on over there."

Lindsay Tiles, a Schwab spokeswoman, tried to downplay the impact of last week's events. "We always get more calls when things like this happen in the industry," she said.

But the interest in Schwab Institutional is quite intense, Ms. Tiles said. The firm's volume of incoming calls from advisers interested in going independent, or in learning more about their options, increased 200% last week, compared with recent weeks, she added.

And the calls from wirehouse brokers and advisers have a distinctive tenor, said one executive.

"What's different is that there's anxiety at the consumer level," said Scott Dell'Orfano, executive vice president of sales at Fidelity Institutional Wealth Services of Boston. Advisers' clients "have anxiety about the safety of some of their firms."

Through August, LPL Financial of Boston had seen a 154% increase in leads for prospective recruits over last year, said William E. Dwyer III, managing director and president of LPL's independent-adviser services. The firm has 11,700 reps and advisers across its network.

Wirehouse reps' perception of independent broker-dealers has simply changed, he said. "It's no longer cavalier to go independent," he said. "It's just the smart thing to do."

E-mail Bruce Kelly at bkelly@investmentnews.com.