More wirehouse brokers expected to bolt this year

Greener grass, expiring deals, calmer market will open gates

Jan 22, 2012 @ 12:01 am

By Dan Jamieson

More brokers should shift to the independent RIA channel this year as markets stabilize and retention deals wind down.

That's the prediction of custodians, for whom last year was a mixed bag as flat but volatile markets made it difficult for many advisers to make major career changes.

Schwab Advisor Services welcomed about the same number of breakaway brokers as it did in 2010, bringing in 166 teams. Breakaway assets fell slightly to $12.1 billion, from $12.6 billion the year before.

“Movement seemed to slow in the fourth quarter,” compared with the prior nine months, said Tim Oden, senior managing director of business development.

He thinks that more movement will happen this year.


Advisers seem to have delayed moves “until another tranche of their retention package wears off” early this year, Mr. Oden said.

“It all looks very positive,” he said.

Schwab provides custody services to nearly 7,000 advisers who manage $679 billion.

TD Ameritrade Institutional enjoyed more momentum, with a record 348 new advisers coming aboard during the fiscal year ended Sept. 30.

That momentum carried through in the fourth quarter, when the firm landed another 100 breakaways, up 14% from a year earlier.

“We see that trend continuing,” said Thomas Nally, managing director of institutional sales at TD Ameritrade Institutional, which holds about $160 billion in custody for more than 4,000 advisers.

Pershing Advisor Solutions LLC brought in $7.3 billion in breakaway assets last year, up 24% from $5.9 billion in 2010, according to Jim Dario, managing director of business development.

The company has just over $19 billion “in active [registered investment adviser] opportunities in the later stages of our funnel,” Mr. Dario wrote in an e-mail.

The firm holds $94 billion in custody for 650 advisers.

Fidelity Institutional Wealth Services won't disclose numbers, but 2011 “was another strong year for breakaways,” said spokesman Steve Austin.

“Our pipeline is strong, with more scheduled [transitions] over the next three months than we have ever seen in the past,” he said.

The firm holds $475 billion in assets on behalf of 3,300 advisers.

Wirehouse advisers are frustrated at the bureaucracy and managements of their firms, retention deals are wearing off, “and at the same time, firms in the independent space have come up with lot of solutions for advisers,” said Mindy Diamond, president of recruitment firm Diamond Consultants LLC, who agrees that 2012 should see more breakaways.

Observers said brokers have been waiting for portions of post-crisis retention and recruitment deals to be earned off this year, especially in the first quarter.


Bank of America Corp. gave Merrill Lynch & Co. Inc. brokers a retention deal in January 2009, followed by the newly combined Morgan Stanley Smith Barney LLC. At the same time, UBS Financial Services Inc. was recruiting aggressively.

“If [wirehouse] guys are in the latter years of a retention package [and] it's the last move of their careers, they'll probably go independent,” said Matt Cooper, managing member of Beacon Pointe Wealth Advisors LLC, an aggregator firm.

“They're not going to sign [a deal for] another nine years,” said Mr. Cooper, who expects to add four to six adviser/partners this year, in addition to two partners added last year.

A report from Cerulli Associates Inc. this month predicts that the wirehouses' market share of assets will drop from an estimated 43% last year to 35% in 2013.

At the same time, custodians continue to pick up representatives from independent broker-dealers.

Some independent broker-dealers have been forced to shut down due to problems with failed private placements and high regulatory costs, leaving reps looking for new homes.

“More things could come out” at the independents, said recruiter Jon Henschen, founder of Henschen & Associates LLC.

Brokers at the smaller broker-dealers will want to be hired by larger firms with more financial backing, he said.

“The hardening-up on compliance — that's one factor” driving breakaways, said Fred Tomczyk, chief executive of TD Ameritrade Holding Corp.

“When you're running a bigger firm, you have to take into account what the bottom 10% are going to do. Many of those routines are cumbersome,” he said.

And of course, a better market environment would help the custodians.

With the global equity markets hitting an apparent bottom in October, prospective breakaways will find it easier to jump ship.

“Turmoil may cause some [advisers] to pause” before moving, Mr. Nally said. “Advisers don't want to approach clients during a period like we had last year and say, "Hey, we're moving.'”

Still, despite the favorable factors this year, RIA custodians won't exactly have easy pickings among their competitors.

The big firms may not care so much about market share, and instead seem intent on keeping their top advisers, according to Cerulli Associates.

Wirehouse refugees could be concentrated among lower producers who have suffered from recent cuts in pay.

Observers also noted that the custodians overall can expect to grab maybe 400 to 500 wirehouse reps each year — not exactly a flood, in any event.

And the surviving independent broker-dealers could prove to be increasingly tough competitors.

“They have smart people running these [broker-dealer] organizations,” said David DeVoe, managing partner at DeVoe & Co. LLC, a mergers-and-acquisitions consultant.

“I expect they'll continue to invest and think more creatively about how to retain their reps,” he said.


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