April 17, 2012

Wells Fargo’s Burgeoning FiNet ‘Well Positioned’ to Draw Breakaways

The independent arm of Wells Fargo Advisors added a special bonus program last year, and experts say it should continue to benefit from the breakaway trend

Wells Fargo Advisors Financial Network (WFC) said late Monday that it expected to build on “the substantial growth it achieved in 2011” when it added 70 independent practices and 152 financial advisors. The network, which is the independent-advisor channel of Wells Fargo, also saw client assets under management grow 18% to $52.7 billion last year.

The company says FiNet has produced double-digit annual growth since its founding in 2001, earning it the respect of recruiters and other experts.

"Those are impressive results,” said executive-search consulant Mark Elzweig (left) of New York-based Elzweig Co., in an interview with AdvisorOne. “Wells Fargo has rock-solid financials and is a well-known household name firm.”

Among the wirehouse firms—Bank of America Merrill Lynch (BAC), Morgan Stanley (MS), UBS (UBS) and Wells Fargo, “It's the only major wirehouse with an independent channel,” Elzweig noted. “This makes it a comfortable choice for advisors from competing wirehouses who want to go independent.”

This should be a big plus for Wells Fargo going forward, he adds. “FiNet will continue to be an attractive destination for breakaway brokers and is very well positioned as the movement to independence continues to gain steam."

Wells Fargo Advisors Financial Network now has more than 1,000 business owners and advisors in 528 practices nationwide.

Wells Fargo Advisors has about $1.2 trillion in client assets and includes 15,134 full-service financial advisors and 3,352 licensed bankers.

"We continue to be focused on helping successful financial advisors establish and grow independent practices," said John Peluso (right), president of Wells Fargo Advisors Financial Network, in a statement.

"Providing quality advisors with the choice and flexibility they want and need to be as successful as possible is central to our mission," Peluso added, noting that that last year's growth resulted from independent financial advisors’ efforts to bring in new clients and service existing ones.

To help facilitate such growth, FiNet rolled out a bonus program in 2011 referred to as the Voluntary Growth Opportunity Award. The program reinvests capital into independently owned practices and awards advisors for “gathering new client assets, ensuring loyalty through the development of a written investment plan, and taking steps to secure the future of their practice through continuity and business valuation plans,” the company says.

To earn thus reinvestment bonus, advisors choose to focus their growth efforts from among these activities, Wells adds.

Breakaways: Big or Little Trend?

A survey of some 2,500 traditional employee advisors released last week found that more than 70% are considering a move to independence, according to Diamond Consultants, a recruiting and consulting firm. Still, experts say, just 10% at most will actually make the move.

"Financial advisors are becoming increasingly attuned to the growing number of high-quality independent-practice models,” said Diamond Consultants president and CEO Mindy Diamond (left), in an interview with AdvisorOne.

That said, Diamond explained, many of the 70% will not go independent “when they really see what it is about and what it is not about: It is not about upfront money, big upfront money, and there’s no cachet of a big brand-name firm.”

"There are now options for advisors who want to go independent through a custodian, plug into an existing independent, use a platform firm for a turnkey solution, or almost anything in between," Diamond said. "The possibilities are extensive and exciting."

Diamond Consultants has placed four teams with a combined $2.5 billion in client assets with independent firms so far this year.

Earlier this year, experts said that an anticipated move by some wirehouse brokerage firms into the independent broker-dealer market could resemble the channels introduced by Wells Fargo and the firms it acquired as part of its ’08 merger with Wachovia.

The wirehouse push was outlined in the report, “The Independent Reps & Independent Broker/Dealers Market: The 21st Century Model?” published by the consultancy Tiburon Strategic Advisors earlier this year. The report says the wirehouses are looking at a semi-independent model as one way to capture and retain more brokers.

Wells’ Profit Formula platform, experts say, lets advisors retain their status as employees while requiring them to pay for some office and other expenses in return for higher payouts. It has given the advisors the freedom to set and distribute their own bonuses to staff, for instance. But, financially, it doesn’t appear to be such a great deal for Wells Fargo.

“They’re not expanding it and not letting reps transfer into it,” said Danny Sarch of Leitner Sarch, an executive-search firm, in an interview earlier this year. “Advisors love it, and no [Profit Formula] reps are leaving.”

Wells and the other firms still have to figure out the best way to profit from semi-independent and fully independent platforms, he adds.

Like Chip Roame (right) of Tiburon, Sarch says the wirehouses “must do something to differentiate themselves from each other and come up with a value proposition as to why they are a good choice.”

Roame insists FiNet is the shape of things to come and is attracting some highly successful advisors, though like the breakaway-broker phenomenon in general, it is not attracting huge numbers.

“Maybe 300 to 500 successful advisors choose to go independent each year and take between $100 billion and $200 billion with them,” said the consultant, who is hosting the Tiburon Stategic Advisors CEO Summit in New York this week.

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