The hottest trend over the past 18 months has been the breakaway broker, the wirehouse advisor who leaves his firm to either become an RIA or to affiliate with an independent broker/dealer. The turmoil on Wall Street, the giant mergers of brokerage firms and the lure of entrepreneurship have all combined to push thousands of advisors to the independent firms.
The longstanding assumption in the industry has been once you go over to RIA or indy land, you just don't go back. And yet, over the last six months, I have noticed that this simply is not always the case: I have helped a handful of RIA or independent b/d advisors return to wirehouse firms or try a wirehouse out for the first time. While it's impossible to know whether this will be a sustainable trend, here are three reasons I think it could continue:
Deals: The deals that are being offered by the wirehouses are at a record high. For the right type of advisor (1st quintile, clean compliance record, good business mix), it could be as high as 330 percent of trailing twelve month's production, structured as 120-140 percent in cash upfront plus five back end bonuses.
Business ownership: For many independent advisors, the lure of becoming a business owner and one's own boss was a primary reason to “break away” from a traditional firm in the first place. But the reality of business ownership does not always match the fantasy, especially in the current economic climate.
Name recognition: When everything is said and done, the strong, time-honored brands of firms like Morgan Stanley Smith Barney and Wells Fargo have a certain cachet that an advisor hanging out his own shingle does not. For some clients, the name on the building simply means more than the name on the door.
A Tale of Two Teams: Consider a $3 million team that I recently worked with. Ryan and Andrew left Merrill Lynch approximately five years ago and affiliated with a large independent broker dealer because their wirehouse firm did not give them the flexibility to serve their clients the way they wanted. When they left Merrill they had almost $400 million under management and $3.4 million in production. Their new independent broker/dealer convinced them they would be given significant resources and technology to build their business. Fast forward almost 5 years and their production is right where it was when they left.
“We were sold a bill of goods regarding the b/d's level of sophistication and technological capabilities,” says Ryan. “We have spent the last number of years and many thousands of dollars creating systems that work for us.” To me, it became readily apparent that they belonged at a full service firm. After spending 6 months on due diligence and taking meetings with two of the wirehouse players and three regional firms in their city, they were pleasantly surprised to find that, unlike five years ago, the wirehouses were open to letting the team function as their own independent within the firm.
What's more, instead of several layers of management, they now have a single complex manager who essentially functions as the key leader in the market. And, oh, by the way, the 330 percent deal that they received didn't hurt. At the start of this year Ryan and Andrew moved to a wirehouse firm, taking over 95 percent of their business with them in less than 3 months.
For RIA advisor team Derek and Ian, going to a wirehouse seemed an almost foreign concept. The partners, with approximately $200 million under management and $2 million in production, had spent their entire professional life (10 years) at an imploding RIA. When we started speaking at the beginning of 2009, they were looking for a new RIA. But I convinced them that it couldn't hurt to look at one or two of the wirehouses.
They ultimately decided they would have greater access to lending, insurance and alternative investments at a wirehouse, allowing them to capture greater wallet share from their clients. They too were offered the opportunity to function as “their own independent firm” within the office, while getting back-office support services. And, they got a recruiting package worth over 300 percent of trailing 12 months production.
Will the “break back broker” phenomenon turn into a trend or is it just a blip on the radar? Only time will tell.
Writer's BIO:
Mindy Diamond
founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com