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Breakaway consultant eyes new wirehouse targets

Feb 26, 2014 @ 12:01 am

By Trevor Hunnicutt

Jeff Spears of Sanctuary
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Jeff Spears of Sanctuary (David Stokes)

By the end of the decade, the universe of top free-agent wirehouse financial advisers will have more than tripled, according to the estimate of a leading consultant, but independent firms will need to offer more sophisticated platforms to lure them.

That is the view of Jeffrey C. Spears, chief executive of Sanctuary Wealth Services, which offers consulting services and support to 18 so-called breakaway advisory teams, most with more than $1 million in annual revenue and client assets greater than $100 million.

“It's a seductive business, but like a lot of those things, it's a lot harder to execute,” he said.

In Mr. Spears' view, many of the most desirable wirehouse brokers are still kept in place by soon-to-expire retention packages.

More: Advisers on the Move has the latest in wirehouse adviser movement

He estimated that some 2,730 advisers managing at least $100 million each will be free from restrictions by 2019, up from 860 in 2010.

The vast majority will stay in place or move to a similar firm, Mr. Spears said he expects.

But about a third of the unrestricted advisers — about 870 — could move into the independent channel, based on past experience.

If true, that estimate could mean growth for registered investment advisers and independent broker-dealers, even as the industry loses advisers because of retirement.

Further Reading: Use our RIA Data Center to learn about the industry's leaders

But, in an interview Tuesday, Mr. Spears said that independent firms will need to work harder to impress top advisers who use enhanced trading strategies and derive commission revenue from using exotic products, such as knock-out options, in their clients' portfolios.

“There's no reason that the RIA business can't evolve to what the hedge fund business did, meaning that the custodians start to act like prime brokers,” he said. “Prime brokers charge trade-away fees, but as a fiduciary you have best-execution responsibility, and right now you don't meet that standard.”

Mr. Spears, 52, a former adviser and Bank of America Corp. private-bank executive, moved to the independent world in 2004, working at the boutique now known as The Presidio Group. In 2008, he co-founded Sanctuary, which has forged partnerships with firms Fortigent, an investment platform provider, and JMP Securities, an investment bank.

Mr. Spears hopes for Sanctuary to add four to five teams in 2014, up slightly from past years, with a limiting factor being his seven-person team's ability to complete the six-month process for setting up new businesses.

“We're like a small-cap manager,” he said. “We're a little capacity-constrained.”

Another challenge is finding the right targets.

“My Rolodex is done. I've already played that card," Mr. Spears said.

"That's what we got Sanctuary with is my Rolodex,” he said, contrasting his firm with the massive network of advisers at Bank of America Merrill Lynch. “I'm not trying to rebuild the Thundering Herd.”

Mr. Spears' estimate of the potential wirehouse moves seems to jibe with the improved outlook of recruiters who work in the independent sphere, who said that the recruitment of top advisers slowed for most of last year before picking up in recent months.

At least two teams have jumped ship recently.

Last week, a Wells Fargo Advisors team said to manage more than $300 million started an independent advisory firm using the Dynasty Financial Partners platform, as well as the The Charles Schwab Corp. as its custodian. And on Monday, HighTower Advisors added a 42nd team to its partnership that reportedly managed $300 million at Merrill Lynch.

But wirehouse executives say that their overall attrition rates are low. The four largest U.S. brokerage firms employ nearly 55,000 brokers and manage nearly $6 trillion in assets, making them the largest segment of the country's advisory industry by the latter measure.

And not all advisers agree with Mr. Spears' assessment that the independent sphere has less to offer sophisticated portfolio managers.

Brian A. Hunter, an adviser who works with Pershing and Interactive Brokers, said that he has faced no limitations in obtaining securities such as over-the-counter derivatives or in executing trades for clients since leaving Morgan Stanley more than a decade ago.

The Strategic Capital Allocation Group chief executive and certified investment management analyst, who manages $8.2 billion, said that trade-away fees, for instance, are negotiable.

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