When she was at BofA, Sallie Krawcheck said that the breakaway movement hadn’t happened yet —that the top producers were still on Wall Street. She’s still saying that, and she’s still right.
Top producers remain on Wall Street for three reasons, although there are indications this could change over the next few years. Here’s why the predicted exodus has never taken place.
1. Top producers are still very much capital markets pros. While they are considered wealth advisors, they like to think of themselves as Wall Street’s equivalent of the neurosurgeon. They use sophisticated techniques and products only a few understand. For example, for someone with $10 million or more in investable assets, capital markets pros may use total return swaps, synthetic indexes or other OTC derivative structures to express an investment opinion.
Service providers, such as custodians, have not evolved to provide these services yet. Many top advisors also manage money and will also require sophisticated trading software that allows straight-through-processing on their multiple custodians using FIX trading capabilities.
2. Top producers like being paid like capital markets pros. Using exotic strategies and solutions often pays outsized commissions. OTC derivatives remain one of the most profitable divisions for Wall Street, and large profits equate to large commissions. This kind of profitability is difficult to recreate as an independent advisor.
3. Top producers are still locked up. The financial crisis motivated the wirehouses to be “generous” with seven-year retention packages for top producers. Five years after the Great Recession, the lock-ups are rolling off, and it’s a much different world today. The market is up, the old management command structure just doesn’t feel right, and younger investors are turning their backs on Wall Street.
When Will They Move?
From our vantage point, we see indications that top producers are considering a life after Wall Street. More and more corner office Wall Street brokers are talking to us at Sanctuary. That dialogue with Wall Street’s best and brightest is likely to accelerate for the following reasons.
First, service providers are recognizing the need to build platforms that cater to this population of advisors, which is small in number but large in client assets. To run their businesses as they do on Wall Street, brokers need service providers to address their needs. It is only a matter of time before someone offers the right combination of solutions.
Next, it’s becoming increasingly clear that top producers who break away can deliver the same results without all that financial engineering. It may be less exciting and provide less short-term income, but there’s a big upside: Unconflicted solutions offered by independent wealth advisors are much more attractive to ultra-high-net-worth clients. Eliminating large commissions also delivers better pricing to the client. Add in the safety of global custody, and your clients will be willing to invest more capital with you. That will more than make up for the lost commissions.
Finally, the Wolf Of Wall Street  days at the wirehouses aren’t coming back any time soon. More regulation and tighter management means that paydays will be smaller. Compliance and paperwork will consume a greater amount of time. Already, there is a shrinking amount of flexibility.
At the same time, younger generations of wealth investors aren’t looking to Wall Street for answers. Today, Gen Xers and Gen Yers think as much about the social impact of their portfolio as the financial. They want an advisor who shares their values. Wall Street will never win that battle for the soul of the Millennial investor. The ethical and sophisticated independent is way ahead.
Breakaway pioneers like Bel Aire, Luminous, BBR and Constellation Wealth left Wall Street because they identified these trends early. They profited handsomely. Top producers who make the break can also realize significant financial rewards, but also more control, less hassle and more time to enjoy life.
Time will tell if this proposition finally makes Sallie change her opinion.