It's become a common story in the industry: Advisors are leaving the wirehouses for independent practice, where they can enjoy greater flexibility and a larger share of profits. Cerulli Associates has reported that wirehouse share of retail advisory assets will decline from 48.5 percent in 2007 to an estimated 40.7 percent by the end of 2012. In the same period, independent broker/dealers would see their share grow from 14.3 percent to 15.9 percent, while RIAs would jump from 9.8 percent to 12.9 percent.

James D. Stoker II is one of the advisors who seemed to represent that trend. Under pressure from clients, Stoker left Smith Barney in 2004 to co-found an independent RIA firm, WaterStreet Investment Consultants. But in 2008, again under client pressure, he did the unheard-of: He went from an independent firm back to a Wall Street wirehouse, joining Morgan Stanley Smith Barney's Graystone Consulting.

What had changed for Stoker? We interviewed him about his experience.

Registered Rep.: You are one of the guys who are supposed to not exist: An advisor who left a wirehouse to go indie and then returned. Why did you decide to leave the wirehouse world in the first place?

James Stoker: It was September of 2004. A lot of our clients on the institutional side were looking for investment management ideas and research. At the time, Smith Barney did a really good job at that, but there were esoteric smaller investment managers especially in alternatives and hedge funds we couldn't use because a lot of these boutique firms were just too small for the firm to pick up research.

There was also this perceived conflict of interest if you were with a firm that had a broker/dealer. Our business is totally under fee for advice, and I think a lot of our clients perceived that if a money manager was trading for the firm somehow you were getting two streams of revenue off the account, and our competitors encouraged that thinking. It wasn't true, but when we were independent that went away.

RR: What was most challenging about going indie?

JS: You don't get checks, you just write them, but that wasn't the hardest part. The most challenging thing was that we had to develop and implement our own capital markets and investment manager research program. We had to write our own research, do our own background checks, due diligence, write up all our notes, and run a whole research program. We found that it took about 60 percent of our time to write research. If we didn't have to do all the research, we could be in front of clients a lot more and closing more business.

RR: Why did you leave independence?

JS: 2008 was a total game changer in the industry because of the immeasurable leverages on the system. There was so much blowing up and then you threw in a couple frauds like Madoff, and a lot of institutional clients started asking us questions about how much bench strength we had, how many research people, how many operational research people we had to do due diligence, all the references, how are we going to audit the auditors. We knew at that point we were going to have to re-evaluate with a big independent or a bank.

RR: Looking back, would you have done anything differently?

JS: One of the unintended consequences was that we actually became really good research analysts, which we would have never done if we just stayed as consultants or advisors. We had a couple of private foundations who came to us and wanted us to run a Yale model fund of funds; being an investor and putting your own skin in the game is a lot different than being an advisor, so managing money gives you a whole different perspective about how to do things. The biggest thing we didn't do well, we didn't focus enough on new business.

RR: Why Morgan Stanley Smith Barney?

JS: One of the things that attracted us back to Graystone, was the fact that if you're a qualified group you can put together your own research and submit it for approval, and go through the due diligence, which a lot of firms won't let you do, so that was up our alley.

RR: What's the biggest change in the industry?

JS: Because of 2008, especially in public fund and municipal markets, endowments and other markets where tensions are out there, we think there is a big opportunity to do discretionary asset management. Someone says, “Here is my $500 million pension fund, it's underfunded, you deal with it.” After 2008 the markets have been so volatile, people on investment committees, or trustees, or city council people who run these funds are just saying, “I can't do it.” We felt you have to be with big solid financial institutions for some of these guys to give you discretion. I don't think the little shops are going to get that business.