February 1, 2012

Breakaway Brokers See Early Financial Benefits, Fidelity Finds

Study finds 76% of 'new independents' say they're better off financially, 64% within first six months of going independent

A study of 173 advisors who had moved to some form of an independent business model from an employee model found that the financial benefits of independence came earlier than many would have thought.

The study, conducted on Fidelity's behalf by Cogent Research (but without identifying Fidelity as the sponsor), found that 76% of those surveyed reported they were better off financially as an independent, with 64% of that number saying they were better off within six months of making the move to an independent BD, starting their own RIA or BD firm or affiliating with an existing RIA firm.

All the firms surveyed had moved to an independent model within the five years prior to the survey being conducted, which was between Sept. 26 and Oct. 13, 2011, and had a minimum of $10 million in AUM.

Mike DurbinIn an interview with AdvisorOne on Tuesday, Fidelity Institutional Wealth Services President Mike Durbin (left) said the motivation behind the survey was to "put some data behind" the much talked-about issue of breakaway brokers by “talking to those who had actually made a move.” The survey was also meant to determine the breakaways’ actual reasons for moving, what the experience was like for them and to glean insights into what those breakaways would recommend to their erstwhile peers who were considering such a move.

Durbin, who runs Fidelity's RIA custody unit, noted that 54% of those who had broken away didn’t have a formal plan, but “one of the lessons they’d impart to those behind them” was to create such a plan. Moreover, some 90% of those surveyed said they wished they’d moved earlier, and 94% said they were happy to have made the move. Nearly half—45%—said they knew “immediately it was the right move.” Only 46% of those who moved said they had done so with some influence of others, and only 20% of that number said a recruiter had played a role. But Durbin noted that while “they didn’t do it with help, they’d recommend it to others."

Speaking of the broader issue of breakaways, Durbin said that while there had been no tsunami of breakaway brokers to the independent model, he did see a change in the “texture”

of the movement. Fewer firms may be leaving, he said, but those who did tended to be larger firms.

As for Fidelity’s own experience, he noted another “sea change”: 65% of our breakaways in 2011 went to existing” RIA firms, he said, while three years ago—when he joined Fidelity—only 40% of breakaways joined an existing firm.

One of Fidelity’s values to potential breakaways, Durbin said, is that “because we have both a clearing firm [National Financial] and a custody operation [Fidelity IWS for RIAs], no matter which option you choose, you’ll go through the same process.” Mentioning that breakaways have “more options than ever” when it comes to affiliation models, Durbin said that at Fidelity “we’re proud of our relationships with strategic acquirers.” Because of those relationships, he continued, “all the time we refer business to a HighTower or other strategic acquirer.”

He had a final word of advice for potential breakaway brokers. “Wirehouse brokers don’t know what they don’t know” when it comes to going independent, which is why, he said “Fidelity spends up to nine months” walking such brokers through the process, though even that takes place well after those brokers—often in teams—agree to explore their independent options. And the respondents said they look at an average of two to three forms of independence to determine their best fit.

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