Breaking away from a brokerage during a pandemic is hard ... but rewarding

The COVID-19 pandemic slowed but did not completely halt the pace of breakaway brokers heading toward the independent advisory channels.

But for those advisers that pulled up stakes and made the move in 2020, an already challenging undertaking proved to be an even steeper climb, but every bit worth the effort.

“I wish I had done it sooner,” said George Nottingham, who left Wells Fargo in May to join Steward Partners, where he is now a managing director and wealth manager.

Nottingham, who had switched firms twice before in his career, describes this one as his “third and final move.”

After spending 18 months researching his options and preparing to move his five-person team outside of the brokerage industry, Nottingham said he decided on Steward Partners in January.

But even six months in, Nottingham said the transition remains a work in progress as he has so far brought on $180 million in client assets of the $200 million his team was managing at Wells Fargo.

“I’m still actively pursuing about 10 or 12 clients,” he said. “Some relationships you think are tight as a tick, and you find out they’re not, and other relationships you don’t think are so tight and find out they are.”

“We decided to leave a long time before we left; I had known for a long time this is something we would need to do.”

Emily Bowersock Hill, Bowersock Capital Partners

At some point in the due diligence process, Tommy Leeman, a Wells Fargo colleague, but not part of Nottingham’s team, joined the track to transition his business to Steward Partners.

“We just had our six-month anniversary here and there is nothing we would have done differently, except that I would have done it sooner,” said Leeman, who has so far brought over $55 million of the $60 million in client assets he was managing at Wells Fargo.

“I am very happy with what I call the invited-guest list that came over,” he said. “There are probably seven clients that have not transitioned over, and I thought they would, but they also have not told me to leave them alone.”

Jeffrey Gonyo, divisional president and founding partner at Steward Partners, said a typical breakaway transition from commitment to actual departure requires a timeline of six to eight weeks.

But in the age of COVID-19, “we are probably looking at a 12- to 18-week process,” he said.

According to Echelon Partners, 387 brokers left brokerage firms for the independent advisory space during the first nine months of 2020.

That compares to 424 during the same period in 2019.

Despite a pandemic-related slowdown, Echelon is projecting a strong final quarter and a full-year tally of 516 breakaways, which will rank 2020 behind the last two years but well ahead of the 2017 total of 423.

A QUESTION OF CLIENTS

As any breakaway broker can attest, the months leading up to the decision to leave and where to go only kickstart more months of scrambling to recruit suddenly former clients to join you as a registered investment adviser.

“The most difficult part is putting clients through it,” Nottingham said. “The average client has six accounts and you’ve got to redocument all those accounts. It was 60 days of 12- to 14-hour days without a day off, and it was probably 90 days before you felt like you were almost there. And there was absolutely no time for new client prospecting.”

Leaving a firm like Wells Fargo, which is part of the broker protocol agreement, Nottingham and Leeman were able to take with them basic lists of clients’ names, addresses and phone numbers.

But those breakaways leaving firms that have exited protocol have an additional challenge to often relies on a good memory.

“We couldn’t even take phone numbers, so we basically sat in a room and brainstormed client names after we left,” said Emily Bowersock Hill, who was part of a six-person team that left Morgan Stanley in July to join Sanctuary Wealth and establish Bowersock Capital Partners.

“We decided to leave a long time before we left; I had known for a long time this is something we would need to do,” she said.

Part of Hill’s due diligence process was “calling teams we’d read about that had already done this. We started watching to see where people were going and researched those options.”

Gonyo said the biggest difference between leaving a protocol and a non-protocol firm is where the bulk of the works rests.

“With a protocol firm, there’s definitely more work that happens on the front end,” he said, citing the packages that are prepared in advance for each client that can’t be shipped until the day the broker leaves the firm.

But at least they are starting with a basic list that includes some client details.

“When it’s a non-protocol firm, there’s a lot more work on the back end,” Gonyo said.

If there is an upside to the logistical scramble of suddenly leaving a firm and then trying to compete against that firm to capture as many of your clients as possible, it is the ability to “break up” with some clients.

“We did not invite all of our clients to come with us, because one of our goals was to reduce our total number of clients,” said Hill. “We reduced our clients pretty substantially. We want to spend our time working with clients we’re excited about. We are not interested in running a volume business.”

While Hill did not invite all her former clients to join her new independent advisory firm, she has surpassed her initial goal by growing to more than $450 million since leaving Morgan Stanley.

“Our initial goal was hoping to hit $350 million, in our wildest imagination,” she said.

BIGGER ISN’T BETTER

While smaller clients are sometimes the first to be cut in breakaway transitions, Nottingham and Leeman said some clients with large portfolios can also be more work than they’re worth.

“We didn’t invite some small accounts because they didn’t fit in with what we’re doing going forward,” Nottingham said. “But we also had a couple of larger relationships that didn’t want to listen to me.”

Leeman said some of his larger accounts “were very needy, and they were not going to be a good fit for me.”

Nottingham and Leeman both said they had clients track them down and ask why they didn’t get invited to be clients at the new firm.

Jason Juhl, who left US Bank Corp. in September to join the Carson Group as a wealth adviser, said trimming his client base was a significant factor in the decision to go independent.

“I went from 800 clients and an average net worth of $250,000 to 220 clients and an average net worth of $1.5 million,” he said. “I was working 12 to 15 hours a day, and I have a 19-month-old child and pregnant wife. You can’t be of great service to 800 people. It’s a disservice to them and disservice to me.”

Even though Juhl describes himself as a “glass is half full kind of guy,” he said he has had to adjust his expectations for how long it takes to bring clients from his former firm onboard.

“I had to change my attitude a bit, because I was thinking I’d get 100% of my assets in a couple of weeks, but people move at different paces and we’re in the middle of a pandemic,” he said. “I’ve been here 90 days and we’re at about 90% assets.”