Hundreds of advisers with tens of billions in assets left Wall Street in 2018

Wirehouses continued to lose advisers last year, although at a slower pace

Feb 6, 2019 @ 1:26 pm

By Bruce Kelly

Last year was another banner year for brokers and advisers leaving the Wall Street wirehouses and moving to financial advice platforms, where they typically receive higher pay and deal with fewer conflicts of interest when it comes to selling products.

According to InvestmentNews data, 235 individual advisers or teams with $61.5 billion in assets left a wirehouse, meaning Merrill Lynch, Morgan Stanley, Wells Fargo Advisors or UBS Financial Services Inc., last year to work at another type of firm: a stand-alone registered investment advisory, a hybrid firm, an independent broker-dealer or a regional brokerage.

However, last year's totals on advisers and assets leaving wirehouses declined somewhat from those of the year before. Compared with 2017, last year saw an 11.5% decline in the number of advisers and teams leaving wirehouses and a 23.1% drop in assets, according to InvestmentNews data, which does not capture all the moves of advisers and brokers but only those publicly reported by companies or news organizations.

Advisers/teams leaving wirehouses to join another type of firm, 2014-2018
Source: InvestmentNews Research

The decline might have been anticipated. In late 2017, two of the wirehouses, Morgan Stanley and UBS, took a major step to slow departures of advisers by withdrawing from an agreement known as the protocol for broker recruiting. That agreement makes it easier for advisers to leave a firm for a new employer. In the second half of 2018, Morgan Stanley and UBS saw the number of exiting brokers decline, according to InvestmentNews data.

Although last year's numbers were down from those of the previous year, "the reality is that these are ridiculously robust numbers," said Brian Hamburger, president and CEO of MarketCounsel, which advises brokers moving to new employers. "Despite two of the largest wirehouses pulling out of the protocol and some in the industry declaring it would mean the end of broker transitions, broker and adviser movement is alive and well."

The trend has been for the wirehouses to experience a steady flow of advisers and assets leaving for other financial advice platforms. Advisers at wirehouses are typically paid in the neighborhood of 40% of their annual revenue, and they can double that portion at an independent broker-dealer. Advisers at wirehouses also commonly complain about being pressured to sell banking products to their clients, which for many represents a persistent conflict of interest.

Over the past five years, InvestmentNews has tallied advisers with $258.8 billion in assets leaving the wirehouses for a different platform.

Advisers leaving Wall Street constitute a business opportunity that other segments of the financial advice industry cannot ignore, said one industry executive.

"There is a hundred billion dollars [of assets] that moves out of the employee channel, and we think we can have a more expansive presence in those flows," said Richard Steinmeier, managing director and head of business development at LPL Financial, citing industry statistics.

To reach that part of the market, LPL's largest affiliate, Private Advisor Group of Morristown, N.J., said last month it was launching a new platform to give it the ability to attract wirehouse brokers who want to transition to the RIA channel.

"I think we can build an offer that will work for those advisers," Mr. Steinmeier said. "We have to consider and overcome any barriers those advisers might have when thinking about moving."

Of course, the four wirehouses aren't going anywhere, and they command a dominant share of the financial advice industry's assets. At the end of last year, Morgan Stanley alone reported total client assets of $2.3 trillion.

But if the number of advisers and assets leaving the wirehouses continues at the current level, the long-term compounding impact on those firms and their wealth management businesses "does not bode well for the wirehouses," Mr. Hamburger said.

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