From the September 2009 issue of Investment Advisor • Subscribe!

Not So Fast

Cerulli's data suggests there may be fewer wirehouse brokers breaking away

Over the past few months there has been, at least anecdotally, a rush of wirehouse brokers moving to the independent space, either as employees in big RIA firms like HighTower Advisors (see August 2009 IA cover story), as partners to existing RIA firms with the active assistance of the big custodial firms, or to the independent broker/dealer space.

Nearly every independent B/D CEO, including the four winners of the 2009 Investment Advisor Broker/Dealers of the Year interviewed in Chicago on August 10, are reporting record recruiting years, partly from the wirehouses. Other notable examples come from Baird, which said on July 30 that it had added 77 advisors representing $4.7 billion in AUM to its wealth management business in the first half of 2009, compared to 59 advisors it had hired for all of 2008.

In an interview in July, TD Ameritrade Institutional president Tom Bradley noted that while many wirehouse brokers were "still kicking the tires" on making the move to independence, he said TD was holding talks with brokers who represented $10 billion in AUM, and that it expected to welcome at least 16 such brokers in the third quarter.

In late July, the largest custodian serving registered investment advisors, Schwab Institutional's Advisor Services, reported a 54% increase over 2008 in the number of brokerage teams that had gone independent through the first half of the year--74.

Earlier, the second-largest custodian, Fidelity Institutional Wealth Services, said that during 2008 it doubled the number of breakaway brokers, to 102, who chose Fidelity as custodian for their newly established RIA firms.

Pershing Advisor Solutions, which calls these brokers "advisors in transition," says it has also done quite well in attracting breakaways to either the independent B/D space or to the RIA option, and it enlists current Pershing-affiliated advisors to help in the process.

A Pershing spokesman said August 16 that through the first half of 2009, 12 wirehouse teams with $1.2 billion in assets transitioned to the PAS platform, more than twice last year's pace during the same time period. In July and midway through August, four additional breakaway broker teams have commited to the PAS platform with a combined $1.5 billion in assets.

But even those impressive numbers haven't made a big difference in the market share enjoyed by the wirehouses, at least according to numbers compiled by Cerulli Associates. In fact, in the most recent advisor edition of its The Cerulli Edge newsletter, Cerulli argues that the trend is overstated.

Still a Big Cultural Shift

While Cerulli says there have been a few high-profile advisor teams moving to independent channels, Bing Waldert, director at Cerulli, says that "the industry, as a whole, has underestimated the cultural leap of being an employee and being an independent advisor."

The majority of advisors leaving wirehouses are moving to other wirehouses, writes Waldert and Scott Smith, senior analyst at Cerulli Associates. Cerulli's data shows that this is true in other channels as well.

"This doesn't mean advisors aren't thinking about changing firms. The decision boils down to two factors: compensation and platform support from the home office. Ultimately, advisors are looking for an advisor-centric firm," says Waldert.

Both Waldert and Smith note that "broker/dealers that are truly advisor-centric offer their advisors different ways to affiliate (either as an employee, RIA, or combination of the two) but also provide them with a variety of nonproprietary products." Further evidence of an advisor-centric broker/dealer is their opinion on revenue, the two researchers say. "Those firms that consider advisors the core of their revenue stream take a long-term view toward profits, and are less affected by the market turmoil," Waldert and Smith wrote in the newsletter.

"Advances in technology have made it easier for advisors to change firms," the two write in the report. "However, by offering advisors operational flexibility and support to develop their practices, broker/dealers will not only be best positioned to retain assets, but they may even recruit some advisors away from competitors."

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