For top-producing wirehouse advisors in mid-sized cities (say Baltimore, Maryland or Salt Lake City, Utah), the career-change opportunities can sometimes seem limited. But a growing number of these advisors are taking a new route: creating independent wealth management boutiques.
When I first meet with them, many top producers who are looking to move tell me they feel they've earned the right to a corner office at one of the “boutique” brokerage firms, such as Goldman Sachs, Credit Suisse First Boston or Bear Stearns. They want the cache that comes with a big brand name; they want to impress wealthy clients and prospects. But these firms just don't have offices outside the major cities, and only set up new offices in very special cases.
Still, many wirehouse advisors are loathe to settle for another wirehouse, where, they fear, they will encounter the very same problems they face at their current firms. And some turn up their noses at the local bank platforms and regional b/ds. The former tend to offer lower payouts and narrower product and service offerings, as well as less attractive brands, while the latter are being gobbled up by larger firms. (Wachovia's recent acquisition of A.G Edwards is only the latest in a string of similar deals over the past two years.) Today, there are only a handful of regionals left, and joining one might put you at the mercy of an acquisition shake-up down the line.
Frustrated by these alternatives, more than half of top advisors give up and stay put, in my experience. Another third make the move to a different wirehouse. But a growing minority is settling on independence — setting up wealth management shops in partnership with local, quality independent b/ds. (Some choose to form or join registered investment advisories, but that is a much bigger leap.)
Take Josh, a million-dollar-plus wirehouse producer in Birmingham, Ala., with $125 million in assets and a book of clients with between $1 million and $10 million in assets. After 22 years at his firm, he decided last year that he needed a big change, and set his sights on Goldman Sachs.
Problem is, Goldman doesn't operate in Birmingham, plus he found the firm wouldn't offer transition money or accept clients with less than $2 million in assets. In the end, Josh decided to create his own wealth management boutique in partnership with a local independent b/d. Why? First, there was payout: Average payouts to independent producers hover around 90 percent versus 40 to 45 percent at full-service b/ds. He also liked that he'd be able to build succession planning into his business — he eventually plans to recruit junior brokers. And he was excited about being able to build his own brand and charge what he felt was appropriate. He realized that his clients already saw him as their primary financial advisor, so he didn't need the big Wall Street brand to keep them happy. For Josh, creating a wealth management boutique was as close to perfect as he could get in his market.
Of course, such a move is not without drawbacks. A self-branded firm simply isn't as sexy as a Goldman Sachs; that may mean you're less attractive to certain prospects. Also, you better know how to manage an office, because you will be solely responsible for your operating costs, which tend to range from 25 to 45 percent of production.
And, in the short-run, you have to make a big financial compromise. You forgo any unvested deferred compensation, as well as the transition package you might have gotten from a wirehouse, plus you have to cough up some cash to get started. Typically, startup costs range from 5 to 15 percent of annual production. The trade-off comes later, when your business presumably is humming along, and you're taking home most of what you make and keeping your own hours.
After careful consideration, Josh decided he could handle these hurdles. So he joined an independent broker dealer and opened an office in his hometown. So far so good — he kept every client he wanted to keep and his production is already up 40 percent. It's hard work, he says, but the rewards are great.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting www.diamondrecruiter.com