Why so few breakaways? Too much regulation, says Pershing exec

Oppressive regulation is having an impact on the number of breakaway advisers, according to Mark Tibergien, president of Pershing Advisor Solutions LLC. "A lot of potential breakaways are dissuaded from going independent," due to the regulatory burden as well as the challenges of running a business, Mr. Tibergien said. "There's a higher barrier than ever" to going independent, he said. The challenges are causing advisory firms to consider merging with similar firms to ease compliance and operational burdens, he added. The top four custodial firms landed about 400 breakaways last year, out of a pool of 60,000 brokers at the wirehouses, he said. "That's a small number," Mr. Tibergien said in an interview yesterday at Pershing's annual conference in Hollywood, Fla. "On the independent side, whether [registered investment adviser or broker-dealer], these are small businesses with finite resources," he added. "Regulation is really becoming a problem for [this segment] of the industry that is trying to grow." Pershing Advisor Solutions custodies $94 billion for 652 RIAs. The biggest regulatory issue for both brokers and advisers is that exams by regulators are "not focused on risk," Mr. Tibergien said. "Exams are focused on a process, and the people coming in to do exams are not knowledgeable and informed," he said. This week, Dan Sibears, executive vice president at the Financial Industry Regulatory Authority Inc., addressed the exam issue. "I could not agree more that we should strive to ensure our examiners understand the firms they're going into examine," Mr. Sibears said in response to a question from one attendee at the conference. "That is one of our key initiatives to reforming the exam program." The goal is to tailor exams to the particular firm, Mr. Sibears said.