Breakaway brokers fill custodians' pipelines

Sep 11, 2011 @ 12:01 am

By Dan Jamieson

Market turmoil usually slows job hopping by brokers and financial advisers, but RIA custody firms say that their pipelines are as full as ever — and they don't expect a slowdown soon.

That is because the spate of bad news emanating from the wirehouses — the prime recruiting grounds for breakaways — is good news for those looking to lure these big-firm producers onto an independent platform.

“When you can tell me when that [bad news] might turn around, I can tell you when my funnel will slow down,” said Tim Oden, senior managing director of business development for Schwab Advisor Services, pointing to the 15% growth in the number of advisers Schwab recruited from wirehouses in the first half, compared with the comparable period a year earlier. He didn't have numbers available.

Overall, the number of breakaways coming to Schwab was up 8% in the first half.

Schwab is the largest custodian for registered investment advisers, with $697.8 billion in assets and about 7,000 RIA clients.

Schwab's recruiting pipeline “has never been stronger,” Mr. Oden said.

“The more turmoil at these [big] firms, the better for us,” said Peter Mangan, chief executive at Shareholders Service Group Inc., an introducing custodian that handles about 880 advisers, many of them with smaller asset bases.

Cost cuts, layoffs and mounting legal risks from mortgage underwriting have shaken confidence in the major banks yet again.

To cap it off, last week's ouster of Sallie Krawcheck as head of wealth management at Bank of America Corp. was a jolt to the troops at Merrill Lynch, who are considered by some recruiters to be the most likely to break away, given the continuing turmoil at their firm and the full vesting of the bank's retention bonuses due in January.

Brokers at the big houses “want more certainty in their own lives,” as well as for their clients, said Thomas Nally, managing director of sales at TD Ameritrade Institutional.

To be sure, the impact of bad headlines will take months to show up in the recruiting pipelines for the custodial firms, given the long lead times in making career changes. But the instability and legal risks at the corporate parents of the big brokers will bolster an already strong breakaway trend, custodians said.

The swirl of negative headlines around the big banks “is a swelling sea of opportunity,” said Scott Dell'Orfano, executive vice president of sales and relationship management at Fidelity Institutional Wealth Services.

In the first half this year, Fidelity brought in 52 new breakaway teams, a bit less than last year, but asset size is up.

Ten of those teams had more than $250 million in assets, which is a “good number,” Mr. Dell'Orfano said.

Fidelity holds $520 billion in custody on behalf of more than 3,300 advisory clients.

At TD Ameritrade, 260 breakaway brokers came on board over the nine-month period ended in June, compared with 290 who became clients in the fiscal year ended Sept. 30, Mr. Nally said.

“It doesn't seem like things are going to slow down” given the turmoil in the markets, he said.

TD Ameritrade serves nearly 4,500 advisers. The firm doesn't disclose adviser assets separately but has said that about a third of its total assets, which are now at $412 billion, come from advisers.

Likewise, at Pershing Advisor Solutions LLC, Jim Dario, managing director for business development and relationship management, said that an already strong pipeline is getting stronger.

Pershing is working on landing almost 100 teams with $20 billion in assets, he said.

In the first half, Pershing more than doubled the number of breakaways from the a year earlier, with average assets under management going from $180 million to $240 million,Mr. Dario said.

The Pershing unit has 650 clients with $93 billion in assets.

Volatile investment markets have been a “little miniboon for us,” said Frank Maiorano, chief executive at Trust Co. of America, a bank that acts as custodian for $11 billion run by 130 turnkey asset management programs and money managers.

Advisers that the firm calls on are looking for better trade management technology to deal with market gyrations, said Mr. Maiorano, who noted that his firm has added about a dozen new RIA clients this year and has grown 15% to 20% a year for a number of years.

In addition to new clients and those in the pipeline, custodians said they are seeing a heavier volume of brokers who are seeking information on how to go independent.

Although bad times at the big wirehouses equate to good times for custodians, truly bad investment markets hurt everyone.

Market uncertainty “creates apprehension for a breakaway [who is] starting a brand-new business in a difficult economic environment,” Mr. Dario said.

“That may give pause. They have some questions about whether clients will follow them, especially with [poor] market performance,” Mr. Dario said.

“Whenever there's turmoil, breakaway teams tend to care for their clients first and might push back plans” to go independent, Mr. Dell'Orfano said.

“I haven't seen that yet with teams we have in process,” he said. “But there is a potential for that if we keep seeing market volatility and steep declines.”

A return to stability could be even worse for the custodial firms. “When people get comfortable, that's when we see no movement,” Mr. Mangan said.

Email Dan Jamieson at


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