Research spoke with Chip Roame, head of Tiburon Strategic Advisors in Northern California, about the latest news affecting the wirehouse firms and the industry.
Research: What is affecting advisors most today? Roame: The captive firms have been in the negative news so much, going back to the auction rate securities and such, even before they were sold. Because of this, the advisors have had to explain a lot of things to clients, when they would call up and ask, “Do we own these products?” That’s strike one.
Strike two seems to be that the stocks of these firms have been very, very depressed. If you hold this stock in a golden-handcuffs program, a 401(k), a stock-option plan, etc., that stock may be worth very little today. If it’s been a reason that you’ve stayed in the past, when it’s paid out handsomely, that’s no longer the case.
And strike three is that some firms have folded or are being folded into another firm. That’s quite a combination of distinct factors.
Given the broader market turmoil, does it make sense for advisors to switch firms now, from the clients’ perspective?Removing ourselves from the current situation, let’s recall that anytime you move, you open up yourself to re-evaluation on the part of clients. You can ask them to fill out the paperwork since you’re going to ABC firm, but that does give them pause to think about whether or not they want to go with you. And they can ask themselves, “What does this move mean for me?”
At a time like now, are these concerns exacerbated? Do more clients say, “I’m too scared, and I can’t go with you?” I think that’s valid to be thinking about and may be a reason that more advisors at major firms don’t move.
So how much movement do you expect?There’s a perception that a big flood of advisors are moving. I tend to think that won’t happen, and that it’s exaggerated. Advisors ask themselves, “Now, do I really want to make that call [about switching firms] to all my clients?” That’s a tough conversation.
On the other hand, if you’re at Merrill Lynch and the firm’s being bought by BofA, it is an opportunity to tell your clients why you and they would be better off at ABC firm. But it’s all about personal preference.
That door, though, is wide open now.
How about a guess as to how many wirehouse advisors will really move out of this model?The answer to this is that the number will certainly be less than everyone says, and that’s point number one. Everyone will predict that crazy numbers will move, but at the end of the day, not as many will have moved. We always seem to exaggerate this trend.
Point number two, if we ask whether or not advisors are more apt to go independent this time around rather than going to another wirehouse, I would argue that they actually may be. This is because the wirehouses have issues that I referred to earlier.