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Wall Street Loses $25 Billion to One Firm as Advisors Flee

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Dynasty President and CEO Shirl Penney Dynasty President and CEO Shirl Penney

Another day, another team of wealth advisors leaving a Wall Street bank.

Four UBS Group AG private bankers overseeing $530 million in client assets are the latest to strike out on their own, creating a Portland, Maine-based firm called Great Diamond Partners, according to a statement Monday. Last week, five Bank of America Corp. advisors in Atlanta overseeing $450 million in client assets departed, while a $6 billion Texas team split from Morgan Stanley in April.

Breakaways are occurring more frequently as advisors hoping to exert greater control and keep a larger share of the revenue bolt big banks to create boutique firms. Smoothing the way are technology ventures such as Dynasty Financial Partners, created by former Citigroup Inc. executives, which provide record-keeping, trading platforms and product offerings once available only at the largest firms.

“Large complex teams require large complex solutions,” said Tim Oden, senior managing director of advisor services at Charles Schwab Corp. “Before the ecosystem existed they had no choice, but now they have a choice.”

Siphoning Talent

Other wealth-advisory firms including Rockefeller Capital Management have also been siphoning talent. The company, run by former Morgan Stanley executive Greg Fleming, has lured teams from Bank of America and UBS in recent months as part of an expansion strategy.

A 10-year bull market and an increase in the number of wealthy families across the U.S. have helped fuel the movement. Most of the recent breakaway teams have yet to be tested by a slowing economy or serious market correction, but Great Diamond founding partner Steven Tenney said some of the risks have been mitigated by improvements in technology.

“The technological advances are independent of the economy and market cycles,” said Tenney, who spent 26 years at UBS. “The best way to capitalize on that technology is by being an independent firm.”

UBS spokesman Peter Stack declined to comment.

‘Well-Traveled’ Road

Great Diamond, as well as the advisors departing Bank of America and Morgan Stanley over the past few weeks, partnered with Dynasty to set up independent companies. Breakaway teams managing a total of about $25 billion now use Dynasty’s platform, the New York-based firm said.

“Somebody who has a business of that size isn’t going to take a significant risk and hope it works out,” Dynasty Chief Executive Officer Shirl Penney said in an interview. “A lot of those teams wanted the road to independence to be a little more well-traveled.”

For a company the size of Bank of America, which has seen three teams overseeing a total of about $3.9 billion depart for Dynasty in the past 10 months, the losses are relatively small. The Charlotte, North Carolina-based bank’s wealth-management businesses have $2.8 trillion in client assets.

“Attrition rates among experienced advisors remain near historic lows, at approximately 3% per year,” Bank of America spokesman Matt Card said in a statement, adding the firm “offers an unrivaled platform and the full range of capabilities advisors need today to serve” clients.

Retention Rate

Still, the migration from big banks is expected to continue as improvements in technology and the growth of turnkey companies like Dynasty, Chicago-based HighTower Advisors and Focus Financial Partners make it easier for teams to set up their own businesses. Independent and hybrid investment advisors will likely make up 28% of the market by 2020, compared with 25% in 2015, according to analytics firm Cerulli Associates.

How the breakaway teams fare financially is based largely on whether or not their clients follow, said Alan Johnson, managing director of compensation consultant Johnson Associates. Advisors who left big firms to start boutiques retained about 87% of their client assets on average, a Schwab survey found.

“If you think you can keep all of your clients, then of course you’re going to make more money,” Johnson said. “The real question is how many clients are you going to lose?”

Banks have become more aggressive in trying to retain wealth advisors, making hard-to-refuse offers to top producers, Johnson said.

“It goes on all the time,” he said, but added, “You have hundreds of these people and you can’t cut deals for everybody.”

‘Hot Summer’

Jeff Erdmann, who leads a team for Bank of America’s Merrill Lynch wealth-management business, said that he’s never considered going independent.

“If you’re completely on your own, you’re trying to reinvent an incredible machine,” said Erdmann, who is based in Greenwich, Connecticut. “Having the association with a large global bank gives security to families.”

Penney said independent advisors on Dynasty’s platform typically see 25% to 40% more in average cash flow than at big banks. “They own all the equity in the business, so they own all the upside as well,” he said.

Penney declined to say how many other teams are poised to jump.

“We’re going to remain busy,” he said. “We’re going to have a hot summer.”

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