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As the breakaway broker market heats up, RIAs have begun picking off BOMs

On March 17, The Moneta Group, a Clayton, MO-based RIA with $7 billion in assets under management, announced that Gene Diederich, a former A.G. Edwards branch manager who became Director of the Eastern Division of Wachovia Securities Private Client Group after the merger, would be its new CEO. At Wachovia, Diederich set strategic objectives, hired new and experienced financial advisors, communicated company initiatives to the entire organization, and worked to retain legacy A.G. Edwards financial advisors post-merger — all skills that caught the Moneta Group's eye.

Many industry players expect demand for good branch managers to swell in the RIA world, especially as RIAs continue to recruit wirehouse financial advisors. “They will need these [branch] managers' abilities to handle and further promote that growth,” says Joe Sheehan, Moneta's chief operating officer — and the man who hired Diederich. “When we were looking for a CEO, we didn't set our sights on the wirehouse world in particular. But, when we met Gene, we realized how much he could help us relate to, recruit and keep wirehouse advisors.”

No one disputes that RIAs are rapidly growing. Last year, independent and RIA firms managed $42.3 trillion in assets, according to a 2008 report from the Investment Adviser Association of Washington and National Regulatory Services of Lakeville, Conn. — up 12 percent from 2007, and more than double the $20 trillion they managed in 2002. And in January 2009, TD Ameritrade Institutional surveyed 506 RIAs and found that half of their new assets were coming from wirehouses and broker/dealers.

Wirehouse BOMs certainly have the skills to further facilitate that growth, Diederich admits. “Given the industry climate right now, with branch manager morale and job security at an all-time low, there are certainly enough good ones for the taking. So if you're asking me is there opportunity for wirehouse managers in the RIA world, I'd say, ‘Absolutely yes.’”

For now, the evidence is primarily anecdotal. The Financial Research Association in Boston says it doesn't keep track of RIA hiring of branch office managers. And Charles Schwab, Fidelity Investments and Raymond James' RIA divisions do not keep track of how many wirehouse branch managers they have hired.

Some feel that only the very largest of RIAs will be able to afford wirehouse BOMs financially. There are currently about 500 RIAs with $250 million or more in assets under management, and these are the ones who have the dough to do it, says Chip Roame, managing principal of Tiburon Strategic Advisors, a Calif.-based industry research and consulting firm.

Team Work

RIAs are looking to lift out “entire advisory teams,” says Andre Cappon, president of The CBM Group, a Manhattan-based international industry consulting firm. “Branch managers can point them in the direction of the best teams to approach. If they can get the manager, too, the transition for these teams becomes much easier, and there's a greater chance they will stay together.” Also, wirehouse managers speak the same language as the reps RIAs are seeking, and they really need them to translate, he says.

“As recruiters, we're already seeing this,” says Howard Diamond, chief operating officer of Chester, NJ-based Diamond Consultants, executive recruiters to the financial services industry. “Any smart RIA with enough money to get these guys will certainly try and do it,” Diamond says. Last year, HighTower Advisors, a hybrid-model RIA-broker/dealer with offices in New York, Chicago and San Francisco, recruited branch office manager Ed Friedman from Morgan Stanley so that he could help them bring more wirehouse advisors into the fold.

Friedman has served as managing director of business development at HighTower Advisors for 16 months now. A 25-year wirehouse veteran who spent 22 years at Morgan Stanley and its predecessor firms, 15 of them as a branch manager, Friedman says he was ready for a change.

“The job of branch manager had changed so dramatically from what it once was that I really wasn't enjoying it anymore,” he says. And, the situation at other wirehouses was essentially the same, he says. So, he took a look at the independent space. HighTower offered him a position he says he couldn't turn down.

In his role, Friedman fields inquiries from, and meets with, high-end advisors who are interested in moving into the independent channel. The 100-member ‘hybrid model’ investment firm, which was founded in 2008, has lifted out seven wirehouse advisory teams since November. As both W2 employees and owners, advisors at HighTower have the ability to do transactional business, says Friedman. The firm offers ownership stakes and practice support along with custodial and product neutrality, he explains. “Compliance and operations management are set up for them within our space, so they can move to independence without many of distractions and risks of having to do these things themselves.”

While the number of inquiries he gets from wirehouse advisors has been steadily rising, Friedman says he's not seeing a “mass migration” to the independent channel as of yet. “But the RIA trend isn't going anywhere,” he says. “With so much focus on it — and so many advisors exploring it — the number of people making the move will continue to grow.” That should include branch managers as well, he says. “They do have a tremendous amount to offer us in terms of business development skills, attracting and retaining wirehouse advisors. Their job security is also terrible. And, I'm certainly receiving inquiries from them, too. So, I'm sure it's just a matter of time before we're hiring them in notable numbers.”

HighTower CEO Elliot Weissbluth says, “[As a former BOM], Ed has had great experience managing a pipeline of advisors which we felt made him perfect to oversee our national efforts in dealing with advisors who are interested in switching firms.” He declined to comment on whether he was looking for additional wirehouse branch managers, (Friedman was the first such hire) but did say that such talent is invaluable for a firm like his. “We are a partnership of very experienced advisors. Therefore, we do not need the layers of bureaucracy typically found in most larger brokerage firms.”

Friedman says the way pay is structured at employee-owned hybrid HighTower is entirely different from the way a branch manager's salary is structured in the wirehouse world, so they are difficult to compare. But while he wouldn't get into specific numbers, he said he sees a brighter future for himself as part owner of a relatively new enterprise poised for growth. When asked if he could ever imagine himself back at a wirehouse one day, his reply was a definitive, “Never.”

While the pay may not be on par with that of the wirehouses, Diamond thinks plenty of managers will be setting their sights on RIAs anyway for improved job security and quality of life. “They may even be able to negotiate deals that would make up for lower earnings on the back end,” he says. After all, non-producing managers are getting very nervous. “They have little job security and are looking for options — and there aren't many out there. If you're a good manager and recruiter, an RIA firm could be an ideal fit for you.”

Producing managers may be even more attractive to RIAs, however, says Rick Peterson, president of Rick Peterson Associates in Houston, a financial services industry recruiting firm. “Good producers are always in demand,” he says.

Branch managers appear to be taking note. “The things that bound us to the wirehouses before — like stability, infrastructure and brand recognition — are not there anymore,” says one legacy wirehouse BOM in New York, who asked to remain anonymous. “The only anchor was deferred compensation in company stock which, in many cases, is now half the value it once was.”

One of his peers on the West Coast, who also requested anonymity, agrees. “It's amazing,” he says. “We now have a viable alternative to what's become an increasingly miserable existence in the bulge bracket word,” he said. “This can't help but appeal to a good number of branch managers.”

DJ Totland, a producing branch director who oversees 16 advisors for Dain Wealth Management's Shrewsbury, NJ office, admits that offers from larger RIAs could conceivably be very tempting. “But, I don't know if RIAs will be financially able to do this on a broad enough scale to call it a real trend,” he says. “I think we have to watch — on a case-by-case basis — to see if the market will really be able to support this.”

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