Indies are too tempting to be ignored

Intrigued wirehouse executives who are looking for a change are beginning to check out independent-contractor broker-dealers, and what they see interests them more and more, industry executives, consultants and recruiters say.
MAR 19, 2007
NEW YORK — Intrigued wirehouse executives who are looking for a change are beginning to check out independent-contractor broker-dealers, and what they see interests them more and more, industry executives, consultants and recruiters say. Consider Linsco/Private Ledger Corp. of Boston and San Diego, which March 6 hired John Moninger from New York-based UBS Financial Services Inc. to lead its advisory services group. With $52 billion in assets under management, the advisory group is the largest at any independent broker-dealer. Other leading independent firms such as Raymond James Financial Services Inc. of St. Petersburg, Fla., and Royal Alliance Associates Inc. of New York, either are talking to or recently have hired for key positions executives with extensive experience at wirehouses. And along with the interest from executives comes some interest by wirehouse broker-dealers, observers said, with one consultant predicting that at least two wirehouse or regional firms will make an acquisition of an independent-contractor broker-dealer over the next year. “From the wirehouse perspective, I think they’re starting to say, ‘Hmm. This is interesting,’” said Philip Palaveev, senior consultant with Moss Adams LLP in Seattle. Wirehouses have two questions about independent firms, said Mr. Palaveev, who declined to name any employee broker-dealers who may be on the hunt for an independent firm. First, are independent broker-dealers a threat to the business of the employee broker-dealer model? he asked. And second, should a wirehouse buy an independent firm and have various business channels? Golden handcuffs Of course, executives, like reps, risk leaving a lot of money in the form of deferred compensation on the table if they leave a wirehouse for an independent firm, observers noted. And far from everyone is convinced that a major wirehouse such as Merrill Lynch & Co. Inc. of New York soon will make a bid for an independent firm. “There’s no concrete evidence I’ve seen for any one of the wirehouses to make a play for an independent firm,” said Dennis Gallant, president of Gallant Distribution Consulting of Sherborn, Mass. “I imagine they’ve all had considerations, but if they are considering an acquisition, they’re being tight-lipped about it.” Industry observers agree that Linsco’s recent expansion, which soon will bring its roster of affiliated registered representatives to nearly 10,000, has gained the wirehouses’ notice. In addition, the likelihood that Linsco soon will become a publicly traded company has drawn the attention of the wirehouses to independent broker-dealers, which in the past have been regarded by some in the industry as a haven for low-producing reps, observers said. And significant cultural and economic differences exist between the employee wirehouse firms and the independent-contractor firms, many of which struggle to turn a profit, observers said. “The wirehouses are starting to take notice,” said Mr. Moninger, Linsco’s senior vice president of advisory consulting services. He had been with UBS Financial Services and its predecessor firm, PaineWebber Inc., since 1995. Growth curves Broker-dealers can grow either organically or through acquisition, and independent firms have the scale to grow, Mr. Moninger noted. For some, part of the incentive to move to an independent-contractor broker-dealer from a wirehouse is cultural. “When you look at executives, like many financial advisers, they’re frustrated,” said William C. Van Law III, senior vice president and national director of business development with Raymond James Financial Services. “It really amounts to a loss of autonomy and flexibility” at a wirehouse, he said. “It’s the same for the financial advisers as it is for the executives.” Mr. Van Law, who is in charge of recruiting, has experience on both sides of the industry. He spent 18 years at Merrill Lynch before joining in 2002 Raymond James & Associates Inc., the employee broker-dealer under the Raymond James Financial Inc. umbrella. Mr. Van Law moved to the independent broker-dealer at Raymond James last fall. He noted that Merrill’s move to close offices to cut costs was particularly frustrating. “In 2002, I had just recruited two new offices, and [Merrill] wanted to close one,” said Mr. Van Law, who said that year was difficult in the industry because wirehouses aggressively were cutting costs and jobs. “Frankly, it created an environment that wasn’t a whole lot of fun anymore,” he said. The past five years in different roles at Raymond James have been “an absolute blast. I’m having fun again.”

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