Tiburon's Roame: Less of a Breakaway Trend, More of a ‘Broken-Away’ Trend

Chip Roame, managing principal of Tiburon Strategic Advisors

Whether you agree with him or not, Chip Roame, managing principal of Tiburon Strategic Advisors, is not afraid to tell you exactly how he sees it when it comes to the financial services industry. It was no different at this week’s Tiburon CEO Summit in New York. During his opening presentation Monday morning, Roame said of the 12 percent of wirehouse advisors that are changing firms in any given year, about 80 percent of them are fired.

“You can call that guy a breakaway broker if you want to,” Roame said. “I would call that guy a ‘broken-away broker.’”

Two-thirds of the breakaway brokers who leave on their own land at another wirehouse or regional because they get a big check, Roame said. Recruiting packages at the wirehouses can be as high as 350 percent of an advisor’s trailing 12-month production, he added.

The other one-third of advisors are going independent. But the wires are not naïve about the fact that they’re losing advisors. According to Tiburon data, the four wirehouses (UBS, Wells Fargo Advisors, Morgan Stanley Smith Barney, and Merrill Lynch) have shed almost 8,000 advisors over the past three years. That’s 13 percent of their sales forces.

In another one of Roame’s bold predictions, he said one wirehouse will launch a half-way house sometime this year, creating a model where the firm is partly independent and partly captive. One example of this is Wells Fargo Advisors Financial Network (FiNet). (Roame's other bold prediction made at the conference was that the number of discount brokerage branches and the number of bank branches will reverse themselves in the next 10 years.)

“They can retain their advisors if they want to, just by bribing them more, or they can create these half-way houses.”

If they choose to do neither, then their advisors are leaving because they're being let go, Roame believes.

“I don’t think the wirehouses are sitting around going, ‘Oh my God, we’re losing our advisors and we’re not noticing.’ They’re noticing; it’s just a question of whether they choose to act.”

At the same time, Roame believe the breakaway broker trend is just getting started. The next crop of wirehouse advisors are watching other FAs break away and keeping a close eye on the trend. Roame expects there to be another flood of advisors out of the wirehouses coming behind them.

He believes the breakaway trend has been overstated, however; the ‘flood’ of advisors that were expected to leave hasn’t materialized. The number of pure RIAs and dually registered advisors account for 34,888, Tiburon data shows, 7,000 of which are with Schwab, the largest custodian. “If thousands of advisors are going independent, then why is the biggest custodian not growing by hundreds every year?”

Meanwhile, the independent broker/dealer channel is bifurcating, with large firms like LPL growing rapidly, and smaller firms struggling to survive. Roame believes IBD firms will evolve beyond just being a broker/dealer to providing other services, such as custody, to survive. NFP Securities, for example, changed its name to NFP Advisor Services Group last year; Roame believes this sends a message that they’re going to eventually be a custodian and a provider of more services.

“That’s the future of the independent rep market,” Roame said. “The independent rep market, this low-margin business, is a dying business, and you got to do something else, other than just clear people’s trades and hang their licenses for them.”

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