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The Lure of Going Independent for Advisors

Many brokers and financial planners get their start in the business through one of the major wirehouses such as Morgan Stanley or Bank of America/Merrill Lynch. And while these firms provide their reps with a great deal of support and training, they also place greater restrictions on what reps are allowed to do and have more power to affect reps' compensation.

For these reasons, many successful brokers are leaving wirehouses to work for independent or regional broker-dealers. These firms can often promise greater autonomy, higher payouts and a superior selection of products for their clients.

This is a look at why they're leaving and what it means to work more independently as a financial advisor. (For related reading, see:Working for a Broker-Dealer vs. a Big Bank. )

Advisors Break Away

At least 189 advisors have switched firms in 2016, though this number is down slightly from same period in the previous year.Theassets under managementthat have changed hands with these moves totals about $31 billion. Increasingly, independent and regional firms are becoming the first choice for top talent in the industry. Two-thirds of the largest moves this year involved a move to one of these two types of firms, according to data from On Wall Street.

John Pierce, the head of recruitment at regional broker-dealer Stifel, said that "The most productive advisors are entrepreneurs that need support, not corporate dictates on proprietary products, banking products, or product mix.” This is what independent and regional firms are able to provide, along with a more diverse array of products and services that can fit more specific client needs. Many wirehouses also treat their senior reps just the same as someone who is just starting, while regional and independent firms recognize that elite producers have specialized needs and require specialized treatment in many cases.

An example highlighted in theOn Wall Streetarticle was Robert Voorhees, a 58-year old financial planner who moved from RBC to Stifel because he felt that his previous firm was primarily focused on selling products instead of paying attention to what his clients really needed. Voorhees said that there are many others like him in the business who want to focus more on holistic and comprehensive wealth management than

on selling bank products. He said, “There’s a clear trend where the wirehouses are losing advisors.” Voorhees used to work for Wells Fargo & Co. after it acquired A.G. Edwards, where he says they employed a one-size-fits-all model that is “managed to the lowest common denominator.” He said that this approach does not work well for the elite brokers who do big production. (For more, see:Steps to Starting Up an Independent Broker-Dealer. )

Another group of advisors cited in the article managed about $600 million for Morgan Stanley and also broke away to team up with three other partners. They formed We Are One Seven, an RIA firm based in Cleveland. This group wanted new technology and a wider selection of investment options, and they also wanted to focus on more than financial health. It wanted to bring life experiences to both its clients and advisors that go beyond money. This type of approach to business is simply not possible at a wirehouse, they said.

Wirehouses Respond

In all fairness, the wirehouses have disputed the claim that all of the elite producers are going independent. Back in October, Wells Fargo acquired another 110 elite producers in a deal with Credit Suisse Group, and a Morgan Stanley spokesperson stated that its level of attrition in the top quintile remained very low. Bank of America/Merrill Lynch also maintained that its turnover level is at a historic low.

Some top producers are wary of going independent because they fear that an independent or regional firm will not be able to service them adequately, and they also like the brand-name recognition that comes with their current position.

The Bottom Line

While many top producers are happy to remain at brand-name wirehouses, a large percentage of them leave these firms in search of greater freedom, higher commission payouts and more sophisticated products and services. Those who are able to make the transition successfully often find greater satisfaction in their practices and have happier clients. Advisors who end up at regional or independent firms are also more able to monetize their businesses and sell them for a much higher price than they would get if they remained at a wirehouse. (For related reading, see:RIAs and Independent Broker-Dealers: A Comparison. )


Category: Advisor

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