When breakaway broker Robert Sayler defected from Morgan Stanley on a Friday afternoon in the spring of 2008, he left a 14-year wirehouse career behind him. Hours later, the 47-year-old advisor had hung up a new shingle: SeaCrest Wealth Management.
His phone and e-mail systems were up and running. Pens, paper and file folders had been placed neatly in his desk. The just-delivered fridge and coffee maker were at the ready as was a new full-time assistant, supplied — like everything else — by SeaCrest. Health and dental insurance? Check. Trading platform? Check. Equity ownership in the RIA? Double check.
The migration of advisors from wirehouses to the independent channel has given rise to alternative business models — such as SeaCrest and the high-profile upstart HighTower Advisors — that are helping breakaway advisors like Rapid City, S.D.-based Sayler make the leap.
“What you’re seeing is a resurgence in financial advisor-centric organizations. The advisor gets all this stuff — they don’t have to pick out what color office chair they want. It’s all provided by the organization. So they get some of the benefits of independence but they’re not getting all of the other responsibilities and the difficulties that come with it,” observes Bing Waldert, director at Cerulli Associates. “It eases that jump.”
Waldert expects the emerging boutique-style firms will thrive as smaller organizations — not as large national firms.
“You’re not going to have a thousand, two thousand or five thousand advisors and retain that small boutique feel. You’ve ultimately only got space for so many advisors. It’s definitely something we’re watching,” he said.
One other model that’s getting a close look by breakaway brokers for much the same reason: the traditional regional firm. Waldert puts RBC Dain Rauscher, Janney Montgomery Scott and Robert W. Baird on his short list.
A new study by TowerGroup expects the big play by breakaway brokers to occur between now and the end of 2010 with between 7,500 and 9,000 advisors, representing up to 14 percent of all wirehouse brokers, considering a switch to an independent model. Up for grabs: $500 billion to $800 billion in client assets. TowerGroup looks for the majority of movement to happen late next year as the markets and the economy stabilize.
The report’s author, Sean Cunniff, TowerGroup’s research director of brokerage and wealth management, said advisors are defecting for four primary reasons: the desire to gain greater control of their business; the need for enhanced personal wealth; damage to the large-firm business model; and the restructuring of the brokerage business.
At this point, Cunniff believes the independent broker-dealer and RIA models are holding their own — with neither demonstrating dominance. But, with the RIAs gathering assets at a faster rate than their wirehouse counterparts, he does expect the shift toward RIA fee-based business to continue.
As for its appeal to the advisor, the transparent RIA platform has much going for it.
“Obviously, the P&L around running their own RIA for a fee-based part of their business is appealing because they’re calling their own shots and capturing all the top-line revenue,” notes Chris Winn, principal and co-founder of MainStay Consulting Group and AdvisorAssist, which provides guidance to brokers on the move. “These are key drivers. The critical point is [that] uncertainty like we’re seeing today is usually a trigger that prompts people to go down a path they were already thinking of. It basically opens up the window and gets them thinking strategy: What must I do to retain my best clients? What’s best for me?”
And increasingly, according to John Shields, Winn’s business partner, advisors are asking this key question: Aren’t there RIA firms out there I can plug into?
“There’s a lot more interest in larger, already established RIA practices,” he says. “In the past, because of the nature of the RIA, it hasn’t typically been fertile recruiting ground. But now you’ve got firms looking to establish more of a national presence. With all the new choices emerging, you’re seeing additional traffic and discussion.”
Back to the Future?
When former Morgan Stanley management executives Ed Sullivan and Rick Sanchez formed Purchase, N.Y.-based SeaCrest Wealth Management in June 2008, they aimed to create a firm that fosters “the spirit of independence” yet allows its advisors “to be part of something.”
SeaCrest is actively recruiting brokers from wirehouses, seeking financial advisors with approximately $300 million to $600 million in revenues and anywhere from 10 to 15 years of experience. The advisors — there are now 16 across the country — receive back office support and oversight, complete ownership of their book, no overhead costs, an equity stake in the firm and payout increases of anywhere between 50 percent to 100 percent over what they were getting at the wirehouse. At the moment, the typical SeaCrest advisor does 65 percent to 75 percent of business in fees, the rest in commissions. SeaCrest, meanwhile, takes a percentage of the advisor’s revenues.
Sullivan, most recently managing director and executive vice president with Morgan Stanley’s Global Wealth Management Group, casts the firm as a throwback to better days on Wall Street.