Comfort Zone

Talk has run rampant lately of an exodus of advisors from Wall Street firms to independent b/ds, regional brokerage firms and RIAs. After all, the big national brands have been damaged by the mortgage meltdown, the takeovers and government bailouts, and many clients are still angry and incredulous. But Wall Street advisors seeking independence are still a minority and tend to have smaller books of

Talk has run rampant lately of an exodus of advisors from Wall Street firms to independent b/ds, regional brokerage firms and RIAs. After all, the big national brands have been damaged by the mortgage meltdown, the takeovers and government bailouts, and many clients are still angry and incredulous. But Wall Street advisors seeking independence are still a minority and tend to have smaller books of business, say analysts. The biggest wirehouse pros are either staying put or joining rival wirehouse firms, as they look to replace lost income with upfront recruiting bonuses. Many of them also feel the big name brand firms still offer more security, in spite of all their screw ups, especially now that the threat of bankruptcy has subsided.

Of the 5,600 wirehouse reps who switched b/ds between November and April, 69 percent stayed in the wirehouse channel, according to Discovery Database. Further, of the 1,961 total reps who switched b/ds in April, 61 percent had less than $50 million in assets under management. Just 11 percent of reps making moves in April had assets over $151 million. “The movement out of the wirehouse channel is mostly by advisors producing under $500,000. Those are advisors who didn't receive retention bonuses, but know they're still considered high-end producers at other firms,” says Alois Pirker, senior analyst at the Aite Group.

Big producers, those with at least $700,000 in trailing 12-month production, are sticking to what they know: the wirehouse channel, according Darin Manis, chief executive of RJ & Makay, a financial recruiting firm in Colorado Springs, Colo. “If you're an advisor at that production level, you're in good shape. You're getting raises and perks while advisors at the bottom are being weeded out and getting payout cuts,” he says. UBS, for example, has been hiring mostly first and second quintile producers — for which production numbers vary by geographic region — since last fall.

Meanwhile, top producers looking to make a move are likely to be tempted by the handsome upfront deals offered by rival wirehouse firms. Recruiting deals equal to 275 percent of trailing 12-month production may have disappeared at the end of 2008, but million-dollar-plus producers can still expect 220 percent. “It's not easy to walk away from 220 percent or more upfront when you've just lost most of the value of your deferred compensation package. Most advisors were relying on that money to retire,” says one recruiter. By comparison, deals at independent b/ds reach a maximum of 40 percent of trailing 12-month production — but most float closer to between 20 and 25 percent.

Gary Owens, a $2.5 million dollar producer with $500 million in assets under management, left UBS in late February. More than anything, he says the market turmoil gave him and his team a chance to evaluate whether or not their practice could be better served elsewhere. Owens and his team began shopping around. After doing their due diligence on other wirehouses, regionals and independent b/ds, they landed at another wirehouse — Morgan Stanley. The reason: the team serves mostly corporate executives and needs a platform to support stock benefit plans and employee stock option plans and retirement plans for corporations. “A lot of the regional and independent b/ds didn't have an extensive platform to support those corporate and executive services,” Owens says. Plus, he says, a move to an independent b/d would not have pleased his clients. “We have clients across the country and we needed something with a national or global presence. It would have been difficult for them to go somewhere they've never heard of, especially in this market where they already felt vulnerable.”

At this point, too, the initial panic that pushed some big wirehouse reps to go independent is gone, say recruiters. “The wave of urgency to leave a firm has expired,” says Danny Sarch, founder of Leitner Sarch Consultants Ltd., a recruiting firm in White Plains, N.Y. “That feeling of ‘Oh my god, I've got to get out of this place right now before it goes under.’ is gone. I took advantage of it, all recruiters took advantage of it and most of the firms took advantage of it. But it's no longer there.”

Of course, to hear Schwab, Fidelity, Pershing, Raymond James and LPL tell it, you might think otherwise. These firms say they're seeing more interest from big wirehouse advisors than ever before. At LPL Financial, Bill Morrissey, head of business development, says wirehouse leads (inquiries from wirehouse reps interested in joining) are up 165 percent from last year, while the number of wirehouse reps that joined LPL in the first quarter of 2009 is up 238 percent from the same period last year. From January through May 8, Raymond James' full-service brokerage hired 96 FAs from wirehouses with $45.3 million in production and $5.7 billion in assets. At Raymond James Financial Services, the independent arm of the firm, the number of wirehouse reps who have joined year-to-date, combined with those who are scheduled to join, represents a more than 4-fold increase from last year, Raymond James says.

Over at Schwab, during the first quarter of 2009, 38 wirehouse reps with $2.7 billion in assets started or joined an existing RIA, versus 23 reps with $6.1 billion last year. (The first quarter of 2008 includes $5 billion in AUM from Gurtin Fixed Income Management — a wirehouse team from Morgan Stanley.) Pershing Advisor Solutions welcomed 9 wirehouse teams in the first quarter this year with $1 billion in assets, versus 16 teams with just $75 million in client assets last year. And Fidelity Institutional Wealth Services brought on 33 breakaway brokers with $2.2 billion in the first quarter compared with 46 reps and $1.4 billion in the year ago quarter.

Still, analysts and recruiters say the number of big producers going independent is insignificant in the bigger picture. In fact, Dennis Gallant, of Gallant Distribution Consulting, says all the talk of independence is pretty much business as usual for down markets. “Anytime there's a market downturn we see an increase of wirehouse reps thinking about going independent. Does that mean most of them actually do it? Not really,” he says.

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