The last 18 months of turmoil in the financial markets and at the individual New York brokerage firms appears to be benefiting the RIA industry. Despite the still-outsized signing bonuses offered by most Wall Street firms, the steady trickle of brokers leaving wirehouse firms to join—or form their own—RIA firms is growing.
According to Fidelity, 55 “breakaway brokers”—financial advisors who have left one of the five wirehouse firms—with $7 billion in client assets joined the firm’s growing RIA empire in the first six months of 2008. That’s more than double the assets breakaway brokers brought over to Fidelity in all of 2007.
Of course, that’s still a drop in the bucket when you consider that Merrill Lynch alone has 17,000 financial advisors and over $1 trillion in client assets. Still, there hasn’t been a lot of movement in the opposite direction—from RIA firms to Wall Street banks—in recent years.
Fidelity’s RIA division, Fidelity Institutional Wealth Services, now custodies more than $355 billion in assets for more than 3,800 RIA firms. Meanwhile, Schwab’s RIA custodian, Schwab Institutional, is also having a banner year. According to a firm spokesperson, net new client assets for the first half of 2008 were $9.4 billion, eclipsing the sum gained in all of 2007 ($9.2 billion).
While a small percentage of wirehouse FAs opt for independence every year (both independent broker/dealers and RIAs), the current crisis has decimated stock values of Wall Street firms—loosening the glue (read: deferred comp plans which are often heavy in company stock) that used to hold FAs at their wirehouse firms—no matter how unhappy they were. (Read Registered Rep.’s July cover story, Asset-Gathering Machines, for more on the shifting power balance between RIA firms like Schwab and Fidelity and others, and their wirehouse rivals.)
While the stream of wirehouse refugees has been on the upswing this year, helped along by the asset-backed securities meltdown and the auction-rate securities freeze, “There has been a real sense of urgency over the last three months,” says Scott Dell’ Orfano, executive v.p. of Fidelity Institutional Wealth Services (FIWS). Dell’ Orfano says that in the past FIWS had to compete against “the wirehouse down the street” for departing wirehouse reps, these days, “You don’t have that variable anymore.”
Of course, some advisors, and clients, are perfectly content to stay on Wall Street at the big wirehouse firms, and there are advisors who will still be attracted to the large recruiting bonuses offered by so many of these firms. Last week the financial markets were a mess, but this week Merrill Lynch, Morgan Stanley and Goldman Sachs have stabilized.
Dell’Orfano claims it’s not just disgruntled brokers fueling the move to create their own RIAs but “Now the consumer is driving the need for a change they are starting to ask questions: ‘Are my assets safe?’ There is a sense of anxiety about safety, about protection of their [the clients’] life savings.” Dell’ Orfano says that departing reps whom are creating their own RIAs and using Fidelity’s RIA platform are bringing more than 90 percent of their clients with them.