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Portfolio > ETFs > Broad Market

You Are Like Your Clients

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I asked Tim Kochis the question I pose at the end of nearly all my interviews these days. “What,” I said, after we had discussed Tim’s firm’s big merger with Quintile Wealth, which to me seems like a watershed event (see page 37), “if the market tanks?” I ask because I worry that this wonderful growth in the independent advisor market that we all celebrate has taken place over a fairly long and mostly benign market stretch. “What will those big wirehouses and banks do to you competitively if times get rough? What if they’ve learned their lessons from all their recent scandals?” Having had some thoughtful discussions with Mr. Kochis over the years on topics as diverse as the internationalization of financial planning and the woeful state of racial parity in the profession, I was not surprised by his response. He’s unconcerned over those deep-pocketed firms eating Kochis Fitz/Quintile’s lunch. “Don’t you see, Jamie, for them it’s just a sideline; for us, it’s what we do.”

I hope he’s right. There are plenty of reasons to think advisors whose only job is giving advice are grabbing market share from wirehouse brokers and others whose primary job is selling product, though I’ve never seen any credible data proving the point.

Certainly, Schwab Institutional’s growth over the past 20 years of serving RIAs is impressive (RIA assets custodied there stood at $581 billion as of the end of the third quarter), and Fidelity Institutional Wealth Services reported in mid-November that it had crossed the $300 billion mark in advisor assets. You shouldn’t sneeze at TD Ameritrade (at least it never merged with the now very troubled E*Trade). Moreover, with Mark Tibergien at the helm of Pershing Advisor Solutions, it’s a safe bet that custodian will be making some serious forays into its competition’s market share.

To get some authoritative answers to my question, I turned to Barnaby Grist, the soft-, but carefully, spoken Schwab executive in charge of its ATI (advisors transitioning to independence) program. He told me during the recent Schwab Impact show in Las Vegas that his team will bring into the Schwab fold this year a solid 100 such breakaway brokers, with an average $100 million in AUM, about double the rate of last year. Moreover, those who do transition, he said, average 30% growth in AUM in their first year of independence. In the best Missouri fashion (okay, he’s actually from England), Barnaby then invited me to sit in on a Webcast in which a panel of newly minted RIAs showed and told their stories of why and how they had left wirehouseville for the independent life.

What struck me the most during the session was the reported reaction of the great majority of these ATIs’ clients when their advisors broke the news of their depature from Mother Merrill or wherever else they fled from. It seems that many of said clients could identify with their erstwhile brokers’ desire to go independent, to build their own firms and legacies, since so many of them had taken the same step: building their own companies. They were more than happy to vote–with their assets–for an advisor who was willing to take that same step.


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