RIA Compliance Blog
It is expected that more brokers will leave their wirehouse firms in the coming year. Numerous independent firms, Schwab Advisor Services, TD Ameritrade Institutional, Pershing Advisor Solutions LLC, Fidelity Institutional Wealth Services and Diamond Consultants LLC, saw an increase in “breakaway brokers” joining them in 2011. As a result of these breakaway brokers, Cerulli Associates Inc. has predicted in a recent report that the wirehouses’ market share of assets will drop from an estimated 43% last year to 35% in 2013.
The report also states that the big firms no longer seem to care as much about the market share they possess but rather seem intent on retaining their top advisers.
This trend in increasing breakaways seems to be a result of brokers who have been waiting for production requirements in earlier recruitment and retention deals to be fulfilled this year. Brokers may also be growing frustrated with increasing compliance demands, as well as with the bureaucracy and managements of their firms. The president of Diamond Consultants LLC, Mindy Diamond, agrees that there will be more breakaways in 2012 and states, “and at the same time, firms in the independent space have come up with a lot of solutions for advisers.”
As a result of these predicted breakaways, wirehouses may have to make some changes to retain their profitable brokers. They may try to keep their brokers by offering higher retention bonuses and recruiting more aggressively. A broker dealer market research, firm Tiburon Strategic Advisors, developed a “semi-independent model” for wirehouses to use in an effort to keep brokers from leaving. Under this model, wirehouses would establish a space in which brokers would receive a higher payout in exchange for paying for rent, staffing and their own technology. Wells Fargo and Merrill Lynch already offer a contractor advisor business model where the brokers receive a higher payout but have to pay for services.
Not all people think that this model proposed by Tiburon is the best method. One recruiter in the industry, Mark Elzweig says, “It is easier said than done. The independent side is far less profitable than the employee side. … For the most part the people going independent are the smaller producers.”
Last year, Aite Group conducted a survey of brokers’ attitudes toward leaving their firms. Of 150 brokers asked, almost half of the wirehouse brokers were drawing up plans to exit their firms in 2012, and roughly half of those were serious about following through. Only one-third of the wirehouse brokers wanted to move to another wirehouse as opposed to going to an independent platform or a small regional brokerage.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.