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Industry Spotlight > Broker Dealers

Schwab Doubles Number of Breakaway-Broker Prospects at Impact 2011

By Janet Levaux

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Tim Oden, a Charles Schwab executive, says as far as the firm’s concerned, the breakaway-broker phenomenon is going strong. The proof is the number of prospects attending this week’s Schwab Impact conference in San Francisco, which has attracted about 2,100 advisors and roughly 1,900 other guests.

“We have 87 prospective breakaway brokers at this year’s Impact, double last year’s number,” said Oden, senior managing director of business development for Schwab Advisor Services, in an interview on Thursday with AdvisorOne. “They can come all week. We have one day of breakout sessions for them, regional dinners and other ways for them to interact with advisors, vendors and staff.”

A big reason for this uptick, Oden says, it that a large number of wirehouse brokers will see the terms of their retention bonuses end in January 2012. “They have retention packages that will sunset next year, and so they’re earnestly kicking the tires,” Oden explained. “This is when they could decide to make a move.”

The prospects, he says, mainly come from the wirehouse firms (Merrill Lynch, Morgan Stanley, Wells Fargo and UBS). However, some also come from independent broker-dealers, while others are RIAs who custody with rivals and “are revisiting that relationship,” said the executive.

“A great deal of the talks we are engaged in with prospects concerns the sunset provisions of their retention packages, which means they are through with the major decision-making process. They have made it and are now being thoughtful about when” they make the move to independence, said Oden. And this decisiveness “bodes well” for recruiting in the first and second quarters of 2012, he notes.

chip roameAt the Tiburon CEO Summit held in mid-October in San Francisco, consultant Chip Roame (left) said he believed that “only 300-500 successful advisors choose to go independent each year,” while about 5,000 wirehouse advisors were let go in 2010. Based on his numeric analysis, the “breakaway broker” trend is more hype than reality, the consultant shared.   

As brokers move out of the wirehouses, some — roughly 40% — must decide what to do with their commission-based business. “Will you handle some of this yourself? Join another firm to take care of it? These are the types of questions that serve as a starting point — do you need a broker-dealer?” explained Oden. “If so, you’ll have to spend some time on this issue and look into the future of your business.” Some could decide to work with an independent broker-dealer, join a corporate RIA, become part of an existing RIA firm that has a broker-dealer affiliate, or not move out of the wirehouse model.

Within the wirehouses, corporate “unknowns” can prompt some advisors to consider jumping ship and look at independence, he says. “When you have events that impact or look like instability at the leadership level, this can play a role in advisor decision making,” said Oden, when asked about the departure of Sallie Krawcheck from Merrill Lynch in early September.

But these headwinds could also give rival wirehouses the chance to add an advisor. “Just like negative headlines, advisors can explore all their options,” Oden said. While many of them will indeed explore independence and other models, it doesn’t make sense for all advisors to make this shift in their business model.

Regardless of the firm and the particular market dynamics at play, advisors generally take six to 12 months to decide whether or not to switch firms and which model to embrace. “The process is very well thought out,” the Newport Beach, Calif.-based executive explained.  

Newer rivals in the space, like Cetera and RBC, don’t really complicate Schwab’s recruiting work, Oden says. “The growth of the RIA segment is fantastic. We can still take our share of a growing segment,” he noted.

When asked about the number of women and minorities looking at Schwab, Oden said, the prospects are “becoming more diverse, and that’s a good, healthy sign.”

The number of prospects who are part of teams is growing. “I’d say about 25% of the prospects team members, but they represent more than that percentage in terms of assets under management,” he shared.

Another reason for the boost in the overall number of prospective breakaway brokers, Oden says, is the big push being made by Schwab. “We have an effective team reaching out and getting the story in front of more people more effectively,” the executive said.

Click here to read AdvisorOne’s complete coverage of Schwab Impact 2011.

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