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October 13, 2011 at 09:35 AM
While the number of wirehouse advisors continues to shrink, the assumption that a large number of them are going into the independent channel is flawed, said Chip Roame, head of Tiburon Strategic Advisors during the group’s CEO Summit in San Francisco on Wednesday. “I don’t buy it,” said the consultant.
“The fact is that 12% of wirehouse and regional advisors typically move in a year, and 90% of them do so because they are fired,” he explained during a presentation on industry trends. “Of the remaining 10% who chose to leave, 70% stay within the channel that includes the wirehouse and regional firms.”
“So what are we talking about? Maybe 300 to 500 successful advisors choose to go independent each year and take between $100 billion and $200 billion with them,” said Roame. In contrast, about 5,000 wirehouse advisors were let go last year, he shares, and these brokers have about $17 million in average assets vs. the overall wirehouse average of $94 million in AUM.
Some of these fired advisors may indeed go independent. But since it is not a step they are taking of their own volition, this movement is far from the much-hyped “breakaway-broker” trend, Roame says. “Anecdotally, my understanding is that many of them become wholesalers or take similar positions within the financial-services industry,” he explained.
At Bank of America, for instance, some advisors who are being pushed out of the FA channel can move over to the Merrill Edge, BofA’s mass-affluent Web-focused channel, by working in branches or phone centers.
“Why is the breakaway shift so small? Advisors need more landing pads. They don’t want to be their own RIA,” said Roame. This situation, he adds, is helping consolidators who can handle the back-office issues, such as HighTower, and firms like Schwab.
It’s also leading the wirehouses to consider ways for their captured advisors to embrace the RIA model in what he calls “halfway-house” developments. Such hybrid models could be introduced over the next few months by wirehouse firms like Morgan Stanley Smith Barney, according to Roame.
On the flipside, however, some independent advisors such as Ron Carson, are moving out of the independent broker-dealer space dominated by LPL Financial in order to have their own RIA. “There’s a lot of polarization going on these days,” Roame shared.
For the broader financial-services industry, the distribution system is generally moving toward more independent structures of all types, Roame said. This trend, along with the continued dominance of high-end advisors and expansion of self-service or partial-service investing models (like Merrill Edge) will continue to be major industry trends, he believes.
