Jeff Spears, CEO of Sanctuary Wealth Services LLC, San Francisco
REP.: Your firm offers “business support” for RIAs, specifically breakaway brokers. You consult for eight firms with $2.1 billion in assets. You say that a large cohort of the best brokers has not yet left their wirehouse firms. Why?
Jeff Spears: 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.
REP.: Why do wirehouse advisors leave anyway?
JS: 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.
REP.: How long does it take to make money after all the moving costs?
JS: Transition of an advisor’s entire business usually takes three to six months.
REP.: What kind of operating margins do RIAs gross and net?
JS: Large RIAs should earn operating margins of 60 to 65 percent. Net: Between 10 and 30 percent.
REP.: How do breakaway teams work out compensation?
JS: It’s similar to when they worked on Wall Street. The only difference is that your branch manager is not involved in the decision.
REP.: What portion of a book can a broker really expect to take with them?
JS: Our experience has been from as low as 70 percent to as high as 100 percent.
REP.: Does the b/d try to hassle departing brokers? Is the protocol still respected? Any playing around with U5s?
JS: The protocol is respected but most of the hassles are related to outstanding loan balances and perceived client solicitation violations.
REP.: What is a departing broker giving up? What is he gaining?
JS: Giving up syndicate [IPOs] but gaining greater access to investment products from any provider, including an FA’s old firm!
REP.: Who shouldn’t leave the bosom of a wirehouse?
JS: A broker who has a large trading business, typically with middle market institutional clients or a broker that has a lot of syndicate business.
REP.: What do Wall Street firms do right?
JS: 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.
REP.: Which is more profitable: hybrid, fee-only or RIA as portfolio manager?
JS: The hybrid makes the most current income, however, the fee-only and advisor as portfolio manager are experiencing high growth rates. —David A. Geracioti