Expected boom in breakaways a dud so far

Improved financial markets and retention money could be keeping wirehouse reps in their seats

Feb 12, 2013 @ 3:25 pm

By Andrew Osterland

Jeff Spears, like every other executive recruiting wirehouse brokers to the independent channel, was hoping that business would pick up for his firm this year.

Mr. Spears is the chief executive of Sanctuary Wealth Services LLC, which provides business support, back-office services and investment solutions for independent advisers and those interested in going independent. With another year amortizing off the typical seven-year retention packages given to thousands of wirehouse brokers after the financial crisis, Mr. Spears expected a new wave of advisers would be ready to jump ship from their Wall Street firms this year.

“Everyone is saying it's a great environment for recruiting these advisers, but so far, the first quarter has been a dud,” said Mr. Spears.

Well, not a complete dud. Sanctuary has had some recent success recruiting already independent wealth managers. It signed up an adviser team from investment bank/money management firm ThinkEquity LLC, which renamed itself Crosspoint Capital Management. It was also hired by two veteran investment professionals — Michael Battey and Hannah Sullivan, who launched Emerald Bay Wealth Management in 2011. Sanctuary now provides services to eight firms with a total of $2.28 billion in assets under management.

The wirehouse recruiting channel, however, has been quiet of late, said Mr. Spears. “It's been a reality check for me,” he said. “I assumed the market [for breakaway brokers] was going to be bigger.”

He sees two major reasons for the relative lack of brokers making the break for independence these days. The first is the improved financial markets, which are making life a lot easier for everyone. “The advisers who stayed with their firms after the financial crisis are doing a lot better now,” said Mr. Spears.

The second reason is the retention money that advisers would have to pay back if they were to leave their firms now. As they received the money as a forgivable loan in 2008 or early 2009, they still have at least two years left on their agreements. A move to another wirehouse would likely come with a signing bonus that could cover the remainder of their retention packages — one reason another wirehouse is the most frequent destination for Wall Street brokers leaving their firms.

Mr. Spears does not invest in advisory practices, so he doesn't offer upfront money to bring new client firms to Sanctuary. He has, however, been working with a Los Angeles bank to craft a loan package that could help breakaway brokers pay off the rest of their forgivable loans. He's hoping that leads to Sanctuary's signing up more wirehouse advisers.

Jonathan Henschen, who recruits advisers to the independent broker-dealer channel, agreed that the market for breakaways is soft. "Last year was a dud as well for recruiting wirehouse brokers," said Mr. Henschen. He attributes the relative lack of movement out of the wirehouses to the volatile financial markets. "Reps don't like to disrupt the gravy train when the markets are good, and when the markets are bad, they're afraid that their clients will leave them if they move," he said. "Flat markets are probably the ideal recruiting environment."

The increased competition for breakaway brokers will continue to be a challenge for firms, suggested Danny Sarch, president of recruiting firm Leitner Sarch Consultants Ltd. “Around half of wirehouse brokers leaving their firms go to another wirehouse,” he said. “Every other company is competing for the rest of that pool of people. That's the challenge."

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

May 30

Conference

Adviser Compensation & Staffing Workshop

The InvestmentNews Research team will present exclusive data and highlights from its bellwether benchmarking study that will identify best practices for setting and structuring compensation and benefits packages throughout your... Learn more

Featured video

INTV

Surprises when reporting on Morningstar

Assistant managing editor Susan Kelly speaks with senior columnist John Waggoner about the interesting discoveries he found in speaking with the analytics giant.

Latest news & opinion

Focus Financial files for an IPO valued at $100 million

The RIA aggregator, founded by CEO Ruediger 'Rudy' Adolf (above), has partnered with more than 50 registered investment adviser firms.

Piwowar defends SEC's best-interest rule

SEC commissioner says the Department of Labor rule set up an 'unworkable, impossible set of standards for people to comply with.'

RIA in a Box acquired by private equity firm Aquiline Capital

New owners plan more growth for the software service provider.

IBDs with the most female reps

Here are the 10 independent-broker dealers that have the most female reps.

Supreme Court decision likely to prevent brokers from filing class-action lawsuits

However, it likely won't bar employees from filing 401(k) lawsuits against their employers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print