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Industry Spotlight > Broker Dealers

Is the Breakaway Broker Wave Finally Happening?

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Around the time that the financial and markets crisis climaxed with government bailouts and big bank takeovers, many observers predicted that the independent advice business would see its ranks swell by the phenomenon of the breakaway broker: wirehouse brokers, scarred by bad press and resisting the push to sell proprietary product, would embrace the independent model in droves.

It didn’t happen, though there was plenty of tire kicking that went on. However, Craig Gordon, the RBC Wealth executive who provides guidance to existing RBC advisors and recruits independent RIAs and brokers to affiliate with RBC, says that he believes the market for independence is turning.

In an interview during the Financial Planning Association’s annual conference in Denver on Oct. 11, Gordon, director of Correspondent and Advisor Services for RBC Wealth and a former Fidelity Institutional Wealth Management executive, argued that while there may not have been a flood of wirehouse brokers choosing independence, there has been a sea change in those brokers’ perception of the independent model. Rather than denigrating those who choose independence as brokers who couldn’t make it in the big time, those brokers now see the RIA or independent broker/dealer path as an appropriate choice for the successful broker.

“It’s acceptable now to be a boutique,” Gordon said. “The perception has changed in the wirehouses,” he said, where many brokers are “disenchanted with the status quo.” RBC, Gordon suggested, is benefiting from that new perception in its various business models—in both its employee broker operation and in its fledgling business custodying independent RIAs’ assets.

(In late September, RBC announced it had hired a new team of senior relationship managers.)

Perhaps fledgling is the wrong descriptor, since by acquiring the former Bear Stearns RIA custody business from JP Morgan (the deal closed on June 15 of this year), RBC has jumpstarted its RIA initiative.

Those RIAs who long custodied with the small Bear Stearns custody business are the kind of advisor that all the custodians want: high end advisors with high-net-worth clients. Proof of that can be seen in Gordon’s assertion that none of those RIAs will be affected by the Dodd-Frank bill’s “big shift” of RIA firms with less than $100 million in AUM to state regulation from SEC oversight.

By contrast, Schwab Advisor Services’ Bernie Clark said in an early October interview that roughly half of Schwab’s 6,000 RIAs would be moving to state regulation; Dan Barry of the FPA said during the FPA annual meeting that internal FPA surveys revealed that about half of its members would be shifting as well.

Asserting that at RBC “our infrastructure is meant for advice giving,” Gordon said “we’ve spent the last few years making sure our tech platform allows advisors to bring up all their clients’ accounts in one space.” For its 170 correspondent broker-dealers, Gordon cited RBC’s adoption of SunGard’s compliance system, which it has made available to all its correspondent BDs at no extra cost.

(Investment Advisor’s July cover story focused on RBC Wealth’s new RIA initiative.)

As for the current biggest issue for advisors of all kinds—changing regulation, especially emanating from the Dodd-Frank bill, Gordon said RBC has six different groups comprising 90 people who are “looking at financial services reform,” focusing on how imposing a fiduciary responsibility on all advice-givers “will mean to all our businesses.”

(The second largest custodian for RIAs, Fidelity Institutional Wealth Services, reported its own success with breakaway brokers on Oct. 14.) 


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