Breakaway brokers staying put in 2013

Improved financial markets and retention pay cited as reasons for keeping brokers at wirehouses

Feb 17, 2013 @ 12:01 am

By Andrew Osterland

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

With another year wiped clean from the multiyear retention packages given to thousands of wirehouse brokers after the financial crisis, he fully expected that another wave of financial advisers would be ready to leave their Wall Street firms.

So far, that isn't happening.

“Everyone is saying that it's a great environment for recruiting these advisers, but so far, the first quarter has been a dud,” said Mr. Spears, chief executive of Sanctuary Wealth Services LLC, which provides business support, back-office services and investment solutions for independent advisers.

As he sees it, there are two major reasons behind the lack of movement.

One 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,” Mr. Spears said.

The other involves the retention money for which advisers are on the hook if they leave their firms now. Even though they are one year closer to seeing those retention packages expire, many brokers still have three years or more left on those agreements.

“It's been a reality check for me,” Mr. Spears said of the slowdown. “I assumed the market [for breakaway brokers] was going to be bigger.”

Jon Henschen, whose firm, Henschen & Associates LLC, recruits advisers to the independent-broker-dealer channel, also has noticed a slowdown in brokers' fleeing big firms.

“Last year was also a dud for recruiting wirehouse brokers,” he said.

The volatile financial markets are to blame, Mr. Henschen said.

“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.”

Mr. Henschen also suspects that those advisers most inclined toward independence already have made their moves, and that the volume of brokers going independent could wane.

Unlike some of its competitors, Sanctuary doesn't invest in advisory practices and doesn't offer upfront money to attract new advisers.

Mr. Spears has, however, been working with a Los Angeles bank to craft a loan package to help breakaway brokers pay off the rest of their loans. He hopes that that will lead Sanctuary to sign up more such advisers interested in independence.

Mr. Spears estimates that his target market of wirehouse brokers with more than $100 million in assets under management will shrink to 4,120, from 6,760, over the next three to five years, due to the loss of assets to the self-directed channel and from continued adviser migration to other platforms.


Over the same period, however, the number of brokers not beholden to retention packages is expected to rise to 2,730, from 860, he said.

But not everyone expects the volume of breakaway brokers to slow.

“Last year was relatively quiet, but January was good,” said Mindy Diamond, president of recruiting firm Diamond Consultants. “We think it's going to be a good 2013.”

Recruiter Mark Elzweig is optimistic that movement will increase this year, but he expects that small firms will continue to have a tough time competing for breakaway brokers.

He sees most of them landing at larger independents such as Ameri-prise Financial Inc., Raymond James Financial Services Inc., LPL Financial LLC and Wells Fargo.

Sanctuary has had some recent success recruiting wealth managers who had already gone independent.

Last month, it signed up an adviser team from investment bank/ money management firm Think- Equity LLC, which renamed itself Crosspoint Capital Management. Twitter: @aoreport


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