Lately, there has been a lot of ink dedicated to the idea that advisors, and their clients, are fleeing the scandalized Wall Street wirehouse firms for the world of independent b/ds and RIAs. But the actual numbers may be smaller than you think. According to a recent Cerulli Quantitative Update, only about 27 percent of those wirehouse advisors who consider leaving their firms end up at an independent broker/dealer or RIA. Most of the remaining 72 percent either stay put, or land at another wirehouse, where, in an interesting new twist, they often negotiate with management to create a model of semi-independence for themselves within the wirehouse.
There are plenty of attributes of independence that appeal to wirehouse advisors — things like the ability to have one's own name on the door, to hire and fire at will, and to more or less come and go as you please. But these advantages must also be balanced against the loss of the large upfront check, the burden of handling one's own regulatory, legal and compliance functions, the stress of managing overhead and all of the other responsibilities of running a small business (from buying computers to stocking up on toilet paper). For younger advisors, or those just getting their start, it can be especially distracting to try to run an independent office while they are still building their books.
For those independently minded wirehouse advisors who don't want to “go all the way,” carving out an independent culture within the confines of a wirehouse branch can be a good intermediate choice. For firms, it's a way to keep top advisors — those with $1 million or more in production, clean records and compliant businesses — happy with very little financial outlay. Below is a list of some of the things advisors have been able to arrange for themselves:
- A separate suite of offices and/or entrance in the branch.
- A purely “open architecture” relationship with the firm, so that products are selected solely on the basis of their appropriateness for clients.
- The flexibility to discount fees, and to charge fees that are, within reason, at their discretion.
- The ability to set their own hours (as long as they are producing).
- A dedicated support staff.
- Self-branding, whereby they set up their practices as separate entities within the firm with their own firm name on the door and the marketing literature.
Take the case of Trent and Scott, a $2 million team with $220 million under management from Merrill Lynch in the Northeast who were not happy with the acquisition of their firm by Bank of America. They decided they wanted more autonomy and so they began talking with independent broker/dealers and a few quality RIAs. At first, they were intrigued by the prospect of setting up their own independent firm. But after four months of due diligence, they decided the economics just didn't work for them, considering the state of the current market and the fact that they would have left behind some $100,000 in deferred compensation. So they opted to join another wirehouse rather than go the independent route.
They were swayed by the generous deal and perks offered their new manager Frank. Frank liked the pair's clean record and rapid growth enough to offer an aggressive 250 percent recruiting deal, a separate office suite, and a handsome travel and entertainment budget. More importantly, he promised them he would take a hands-off approach, allowing them to run their business however they liked. By choosing the career path that they have, these two young advisors have achieved both wealth replacement and career satisfaction with one well-timed move.
founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com