On Advice

Advisers with billions in AUM leaving Wall Street

Merrill Lynch has seen two teams exit recently, each with more than $4 billion in client assets

Jun 13, 2018 @ 5:52 pm

By Bruce Kelly

The biggest firms continue to lose groups of financial advisers that have billions of dollars worth of assets under management. These advisers are moving because they want to set up their own shops so they can own a business or to work at smaller rivals where they'll get more autonomy and a nice bump in pay.

The diaspora of financial advisers from Wall Street is occurring despite last year's efforts by Morgan Stanley and UBS Wealth Management Americas to prevent advisers from moving to a new employer.

Their efforts appeared to work, with the rate of advisers jumping to new employers slowing over the first three months of the year.

The question for the remainder of 2018 is the pace at which advisers leave wirehouse. Is the dispersion a trickle or a torrent?

There is no doubt that advisers are exiting the four wirehouses — Merrill Lynch, Morgan Stanley, UBS and Wells Fargo Advisors — that have defined and dominated the financial advice industry for decades. InvestmentNewsreported earlier this year that while the Big Four still get their fair share of recruits from each other, independent broker-dealers have been making considerable inroads in recruiting wirehouse brokers, often the most experienced, productive and profitable in the industry.

The three largest IBDs — LPL Financial, Ameriprise Financial Inc. and Raymond James Financial Inc. — recruited 118 teams from the wirehouses in 2017, a 42% increase over a year earlier, when those same three firms saw 83 such moves, according to InvestmentNews data.

Morgan Stanley and UBS turned the landscape for recruiting advisers upside down last fall when they left the industry agreement known as the protocol for broker recruiting. The broker protocol, agreed to in 2004, made it easier for brokers to move to new firms by allowing them to carry a limited amount of client information during the transition. It also cut down on costly legal fees by limiting lawsuits against brokers when they change firms.

"In terms of the number of people leaving the wirehouses, it seems like the numbers are down, likely because of anxiety around the protocol," said Louis Diamond, an industry recruiter. "Advisers are afraid to leave. But it's the size of the groups leaving that's staggering."

For example, Merrill Lynch has recently seen two key groups of advisers depart.

Earlier this month, Eric Bodner and Ben Sax walked out of Merrill to launch their own RIA, Kore Private Wealth. Mr. Sax and the team manage $4.1 billion in client assets, according to the most recent Barron's ranking of top advisers.

In April, Boston-based Merrill Lynch adviser James Atwood left to work at First Republic Private Wealth Management. According to Barron's, Mr. Atwood managed $4.5 billion.

Both groups were part of Merrill's elite private banking and investment group, or PBIG.

Neither a spokesperson for Mr. Bodner nor a spokesman for First Republic returned calls to comment.

Despite losing such significant teams of brokers, all is well at Merrill Lynch, a spokesperson said.

"The Private Banking & Investment Group of Merrill Lynch is strong and growing," spokesperson Susan Atran said in an email. "We continue to add private wealth advisers, bringing our overall representation to over 370 advisers. Year-over-year we have added nearly 40% more new households and our inflow of client balances is more than 1.5 times that of 2017."

The largest teams of advisers at the four wirehouses are concerned that their compensation plans will change from an adviser earning a percentage of sales to a straight salary and a bonus, Mr. Diamond said. Such a change in compensation would be radical but some industry observers believe it is coming.

And advisers at the two large firms that remain in the broker protocol, Merrill Lynch and Wells Fargo, are worried that those firms could also exit the agreement, despite public comments that they have no intention to do so, Mr. Diamond said.

"Even if the number of advisers moving is down, the significance and prestige of the groups is up," Mr. Diamond said. "The thinking is, if Jim Atwood left, what am I missing? He must know something I don't."

Merrill Lynch is not the only wirehouse to see teams of advisers with billions in client assets leave, he said, adding: "We are very bullish on the rest of the year."

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