Why Haven't the Best Financial Advisors Left Their Wirehouses?

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You've heard about the "breakaway broker" phenomenon, of course.Yet, Jeff Spears, CEO of Sanctuary Wealth Services LLC in San Francisco, says most of the best brokers at wirehouses have yet to breakaway. Why? (Jeff dropped by our midtown offices this week and here is an edited version of what we discussed.)

Your firm offers “business support” for RIAs, specifically breakaway brokers. You consult for eight firms representing $2.1 billion in assets. You say that a large cohort of the best brokers has not yet left the comfy confines of their wirehouse firms. Why haven’t best brokers left?

Most of the best, top producing brokers, still owe their firms too much from their recruiting or retention loans for it to make financial sense to leave and repay the outstanding balance today.

Why do wirehouse advisors leave anyway?

Each broker leaves for a different reason that is unique to their business or personal situation. The reasons range from a corporate merger, compensation change, loss of a large client to a life event, such as a divorce or children moving out of the house.

How long does it take to make money after all the moving costs?

Transition of an advisor’s entire business usually takes three to six months.

What kind of operating margins do RIAs make?

Large RIAs should earn operating margins of 60 to 65 percent.

And net?

Between 10 and 30 percent.

How do breakaway teams workout compensation?

Team compensation is worked out similarly to how team compensation was worked out when they worked on Wall Street. The only difference is that your branch manager is not involved in the decision.

What portion of a book can a broker really expect to take with them?

Our experience has been from as low as 70 percent to as high as 100 percent.

Does the b/d try to hassle departing brokers? Is the protocol still respected? Any playing around with U5s?

The Protocol is respected but most of the hassles are related to outstanding loan balances and perceived client solicitation violations.

What is a departing broker giving up? What is he gaining?

Giving up syndicate [IPOs] but gaining greater access to investment products from any provider, including an FA’s old firm! 

Who shouldn’t leave the bosom of a wirehouse?

A broker who has a large trading business, typically with middle market institutional clients or a broker that has a lot of syndicate business.

What do Wall Street firms do right?

Wall Street does a good job of taking care of their largest producers through client events, A+ office space and special trips for top producers.

What are the trade offs of hybrid, fee only and RIA as PM? Which makes more money? Which has higher profit margins?

The Hybrid makes the most current income, however, the fee only and advisor as PM are experiencing high growth rates. ---David A. Geracioti

 

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