WealthManagement Magazine

Poll: Clients Love Breakaway Wirehouse Brokers

Breakaway wirehouse advisors never walk alone. A new report by Aite Group on the independence movement shows that reps from the big houses demonstrate superior client retention when they leave their employers.

Breakaway wirehouse advisors never walk alone. A new report by Aite Group on the independence movement shows that reps from the big houses demonstrate superior client retention when they leave their employers. Fifty percent of breakaway brokers who left wirehouses were able to bring 75 to 100 percent of their book of business along with them, according to an Aite survey of independents. Another 27 percent of former wirehouse advisors left with 50 to 74 percent of their book. By contrast, 34 percent of breakaways from other captive brokerage firms were able to retain 75 to 100 percent of book, while just 7 percent were able to keep 50 to 74 percent of book. Aite polled 152 independents online in the fourth quarter of last year.

The “stickiness” that wirehouse reps possess concerning their clients is a big driver in their movement to independence, since starting a business from scratch requires large outlays. Those with revenues from a sizable client book are in a better position to cover such outlays. Since 2006, breakaways have outnumbered new advisors in setting up independent practices by a 4-to-1 factor, Aite says.

“There is a pecking order of advisors. It’s hard to generalize, but there’s a reason why a wirehouse broker has so many more assets than another captive broker in a different firm outside the wirehouse space,” says Alois Pirker, Aite research director. Some of it is simply Darwinian; advisors who can’t keep up with production quotas tend to drop out after 18 months, and only the strong survive. “If you’ve made it in a couple of years at a wirehouse, chances are you’ve built a solid book,” Pirker says.

With the prospect of brokers being held to fiduciary standards following the passage of federal financial overhaul legislation, RIA seems to be the model that wirehouse breakaways are embracing, Aite says. Sixty-eight percent of independents who originated from wirehouses have chosen fee-only or dually registered RIAs, the poll found. Client displeasure with the fortunes of wirehouses since the financial crisis can be a factor that leads advisors to leave; 18 percent of ex-wirehouse reps who went independent cited the “severely damaged” brand of their former employer as the dominant reason for their departure, the poll says. In some cases, it’s the clients themselves who fire their wirehouse advisors and bolt to RIAs.

Interestingly, the view that wirehouse advisors break away chiefly for financial reasons is not borne out by the survey. “Higher payout from annual production” was cited as the dominant reason for leaving just 18 percent of the time, tying for third place with the aforementioned damaged brand rationale. The biggest reason that brokers gave for leaving wirehouses was the desire to move to a different advice model (32 percent), followed by a “high degree of uncertainty at previous employer” (23 percent).

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