The Breakaway Broker Boom Continues. Or Not.

The diaspora out of the wirehouses and into IBDs or RIAs is a much-talked about phenomenon. Is it really happening? At a recent Tiburon Strategic Advisors conference in New York, Chip Roame remarked that only one of the big four wirehouse firms is gaining advisors: Wells Fargo Advisors. But Chip also said the great exodus to independence (either IBDs or RIAs) is overhyped.

The diaspora out of the wirehouses and into IBDs or RIAs is a much-talked about phenomenon. Is it really happening? At a recent Tiburon Strategic Advisors conference in New York, Chip Roame remarked that only one of the big four wirehouse firms is gaining advisors: Wells Fargo Advisors. But Chip also said the great exodus to independence (either IBDs or RIAs) is overhyped. And yet, FBR Capital Markets wrote in a research note this morning that the breakaway boom still rages. Which is it?

Says FBR in a note about TD Ameritrade: “TD Ameritrade's annualized organic growth has now surpassed peer Charles Schwab Corp. in each of the past 10 quarters, averaging 10.8% versus Schwab's 6.3%. Growth continues to be fueled by the registered investment advisor (RIA) channel, with TD Ameritrade adding another 95 ‘breakaway brokers’ during the quarter, up 36% year over year. We expect this secular trend to persist over the next several years as disenchanted brokers at the traditional wirehouses continue to turn independent. According to Cerulli, from 2005 to 2010, retail RIA assets grew 39% to $1.91 trillion, while traditional wirehouse retail assets grew 4% to $4.55 trillion.”

But James Wiggins, spokesman for Morgan Stanley Smith Barney, told me in an email note regarding broker headcount: “It is irrelevant, as all advisors are not the same. Some are more productive than others. We have stated that we have a current target of between 17,500 and 18,500 advisors.” Indeed, Morgan Stanley reported headcount of 17,800 for the first quarter, down around 243 advisors due to pruning of underperformers during the quarter. “This pruning process will likely continue — we're talking about people who basically don't produce enough revenues to cover their costs — and as a result, you would expect to see our productivity per advisor increase,” Wiggins continued. And productivity was already up 12 percent in the first quarter, according to Morgan's earnings report. “We are substantially higher than Wells Fargo in productivity per advisor, and we would expect to see this gap continue to widen,” he said.

Selena Morris, spokeswoman at Merrill Lynch, wrote me: “We've had seven consecutive quarters of FA growth. Not sure what Chip is talking about. And yes — exodus to RIAs and IBDs much hyped. We lost 16 advisors net to RIAs in 2010.”

In our own research (via our consulting arm, Rep. Think Tank) last fall, we concluded: “As the financial crisis continued to unravel … It was widely anticipated that the wirehouse culture, honed over several decades, would give way to a new model and that wirehouse advisors would begin leaving in droves. These dire predictions have not come to fruition, and though wirehouse ranks are smaller today than they were two years ago, the decline has primarily been the result of reduction in low-producing advisors. At the higher end, the mass exodus to independents and RIAs has yet to occur as most defections so far have been from one wirehouse to another.”

In short, the truth lies somewhere in a gray zone.

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