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BoMs Contend with IBDs for Top Advisors

BoMs Contend with IBDs for Top Advisors

The independent b/ds are now formidable competitors to the big wirehouses. Branch managers ought to take a page from the independents to lure and keep their top talent.

Years ago, the wirehouses didn’t consider independent broker/dealers a threat to their business—but rather the place unsuccessful brokers go when they fail at their firms. But today the wirehouses are losing some of their largest and most-coveted corner-office teams to the independents. Wirehouse branch office managers, however, aren’t giving up without a fight. Some are taking a page from the independents themselves to lure and keep top talent.

“We used to view the independent space as place where FAs who couldn’t cut it at the wirehouses could go to roost,” said a Merrill Lynch branch officer manager in the Midwest, who requested anonymity. “Now, they’re now getting some of our best producers.”

The data suggests the breakaway trend is not slowing down. Cerulli Associates reports

that 60 percent of FAs who left wirehouses in 2012 went to other wirehouse firms, while 30 percent went into the independent and RIA spaces. The balance went into channels such as insurance and banking. But it wasn’t always this way.

“Until fairly recently, the wirehouses viewed independent b/ds as little more than nuisances when it came to attracting top talent,” said Barbara Herman, senior vice president of Chester, N.J.-based recruiters Diamond Consultants. “But, it’s clear they are now seen as very formidable competitors, and at a time when this whole industry faces a potential advisor shortage.”

“I believe they want to escape the intense regulatory scrutiny of the bulge bracket world, and they want higher payouts,” the Merrill branch manager said. A recent Fidelity survey ofadvisors who moved into the independent space in the last five years—either to an independent b/d or as an RIA—found that their compensation rose 36 percent.

How can branch managers more effectively compete for the growing numbers of FAs going independent? Can they offer some of inherent attributes of the independent world?


Taking a Page from the Indie Playbook

Some branch managers are stressing the independent aspects and flexibility that the wirehouses offer.

“When recruiting, it’s important to stress that the push to sell proprietary product—which made so many FAs seek independence in the past—is no longer really prevalent at the wires,” said a Wells Fargo branch manager, who asked to remain anonymous. “Today, we can treat established reps as independents by essentially leaving them alone, which is what most seasoned reps want. When I recruit, I tell FAs they can enjoy much of what they would at IBDs—with less payout, but a lot more support.”

Not every successful advisor is cut out to be a business owner, said Scot Shier, a Dean Witter alum who went independent 15 years ago. He now heads Quintessential Financial & Insurance Services Corp. with NEXT Financial Corp. in Mission Viejo, Calif.

“Everyone wants more control over their practice, but some reps really don’t want the headache of overseeing everything,” he said. “Wirehouse FAs don’t get the payouts we do. Yet, they don’t spend two-thirds of their time and money on operations, either.”

IBDs offer a great deal of flexibility when it comes to work schedule and location— which has always made theme alluring, said Herman.“Now, technology allows wirehouse reps some of this flexibility too,” she said. “However, it’s also created a bit of a compliance nightmare that the big firms still need to work through.”

“Our local branch managers used to be seen as gods, but they’ve lost so much of that power,” said a legacy Morgan Stanley advisor who asked that his name be withheld. “I think the general sense among FAs these days is that branch managers only want to please the folks above them. They’re always going to take the regional manager’s phone call before they take ours.”

By contrast, he said, “there’s a sense that, at the independent firms, they always have your back—someone’s always looking out for you. And, a lot of these firms now offer some amazing back office support as well.

“If a wirehouse BoM can convince his reps that he’s still willing to go to bat for them—without fear of ruffling any feathers above him,then he has a good chance of recruiting and keeping them,” he said. “I just don’t know how many branch managers will actually do this anymore.”


Falling Short

While wirehouses are making some efforts to incorporate independent characteristics, there is a limit to how far they can go, given the nature of their business model.

“IBDs give reps the freedom to decide what they want their businesses to look like in a way wirehouses simply don’t,” Herman said. For example, wirehouse requirements around minimum account size limit a rep’s freedom to do business with who they want, she said.

“At the wirehouses, we have no control when it comes to pricing and nuisance fees we have to charge our clients either,” said a UBS advisor near Boston, who also asked for anonymity. “It’s incredibly aggravating to both reps and clients.”

“The independent world also offers more freedom in terms of marketing, branding, talking to the press—all of which allow FAs to grow their businesses much faster,” Herman added. “Advisors who feel thwarted in their attempts to build or manage their businesses as they want are the ones who generally look elsewhere. Wells Fargo and Raymond James created independent arms so they could accommodate a wider variety of people. Perhaps some of the other firms will consider following suit.”

Branch office managers should emphasize their strengths—the benefits of a wirehouse firm over an independent firm, Shier said.

“Wirehouses can offer all kinds of integral support that gets their FAs better access to high-net-worth clients, liketheir name and the depth of their institutional support,” Shier said. They have an advantage dealing with CEOs of large companies that want access to their underwriting and legal support, he added, and can sometimes offer a more integrated 401(k) platform.

“The big company name can be an asset or a liability—depending on an individual broker’s business and clientele,” Shier said. “And, its reps are always going to be employees working for a juggernaut. The worst thing a manager can do is sell a prospective FA a bill of goods and then change the rules on him.”

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