The Breakaway Broker Boom Continues. Or Not.

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The much-talked about diaspora of FAs out of the wirehouses and into IBDs or RIAs is a much talked about phenomenon. Is it really happening? At a recent Tiburon Strategic Advisors conference in New York, Chip Roame remarked that the only one of the big four that is gaining advisors is Wells Fargo Advisors. But Chip also said the great exodus to independence (either IBDs or RIAs) is overhyped. FBR Capital Markets says in a research note this morning says the breakaway boom still rages. Which is it?

Says FBR in a note about TD Ameritrade: "TD Ameritrade's annualized organic growth has now surpassed peer Charles Schwab Corp. (SCHW - Market Perform) in each of the past 10 quarters, averaging 10.8% versus Schwab's 6.3%. Growth continues to be fueled by the registered investment advisor (RIA) channel, with TD Ameritrade adding another 95 "breakaway brokers" during the quarter, up 36% year over year. We expect this secular trend to persist over the next several years as disenchanted brokers at the traditional wirehouses continue to turn independent. According to Cerulli, from 2005 to 2010, retail RIA assets grew 39% to $1.91 trillion, while traditional wirehouse retail assets grew 4% to $4.55 trillion."

But James Wiggins, spokesman for Morgan Stanley Smith Barney told me in an email note regarding broker headcount: "It is irrelevant, as all advisors are not the same. Some are more productive than others. We have stated that we have a current target of between 17,500 and 18,500 advisors -- and expect to be at around 17,800 at 1Q end (we will report the numbers next week) as we pruned around 200 underperformers during the quarter. This pruning process will likely continue -- (we're talking about people who basically don't produce enough revenues to cover their costs), and as a result, you would expect to see our productivity per advisor increase. We are substantially higher than Wells Fargo in productivity per advisor, and we would expect to see this gap continue to widen."

Selena Morris, of Merrill Lynch, wrote me: "We've had seven consecutive quarters of FA growth. Not sure what Chip is talking about. And yes--exodus to RIAs and IBDs much hyped. We lost 16 advisors net to RIAs in 2010."

Wiggins then backed that assertion up with this email:

Morgan Stanley Smith Barney 1Q11 Highlights (comparisons vs 1Q10 unless otherwise indicated)

Net revenues up 11% to $3.44 billion;

Pretax income from continuing operations up 25% to $348 billion;

FA headcount of 17,800, down 243 from year-end 2010, as underperformers were pruned from the ranks (emphasis added;

FA productivity (annualized) up 12% to $767 million;

Net new client asset flows up 23% to $11.4 billion;

Fee-based asset flows up 96% to $17.8 billion;

Fee-based client account assets up 21% to $501 billion;

Total client assets up 7% to $1.7 trillion;

Millionaire household accounts up 11% to $1.28 trillion

In our own research (via our consulting arm, Rep Think Tank) last fall, we concluded: "As the financial crisis continued to unravel . . . It was widely anticipated that the wirehouse culture, honed over several decades, would give way to a new model and that wirehouse advisors would begin leaving in droves. These dire predictions have not come to fruition, and though wirehouse ranks are smaller today than they were two years ago, the decline has primarily been the result of reduction in low-producing advisors. At the higher end, the mass exodus to independents and RIAs has yet to occur as most defections so far have been from one wirehouse to another."

In short, the truth is in the grey.

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