December 30, 2011

Advisory Faceoff in 2012: Wirehouses v. Indies

By Tom Stabile

For the past three years, the wirehouses have shrugged off how the independent advisory channel has picked off their advisors, team by team – a modest but steady drain of large and small producers alike breaking off to start up their own firms or join existing outfits.

The 2008 financial crash and subsequent turmoil that the big brokerages have experienced since certainly fed the outflow of advisors from the wirehouses. And independent brokerages, along with the outsourcers, custodians and other vendors serving the independent registered investment advisor (RIA) market, have been upping the ante by making big investments to offer competitive technology and platforms to make an advisor’s transition much easier.

Now, as the choppy financial markets have managed to regain much of the ground lost in 2008, and the most willing breakaway advisor candidates already have jumped, the coming year poses a big question: Was the shift of advisors, assets and momentum from the wirehouses to the independent side a crisis-fueled fad – or the first stirrings of a wider, long-lasting change? Advisory market watchers say 2012 should be a bellwether about the eventual answer.

“It will be a pivotal year that will prove the independent movement is a trend or will prove the wirehouses can get their strength back,” says Todd Taylor, a veteran Morgan Stanley brokerage executive who is now a partner in New York at Heidrick & Struggles, a recruiting firm.

The prevailing winds seem to be blowing against Morgan Stanley Smith BarneyMerrill LynchWells Fargo Advisors and UBS Wealth Management Americas, given that they are not bringing in enough young talent to offset their aging advisor bases, Taylor says. The recruiting efforts of the four wirehouses largely only fill the gaps left by advisors who departed for rivals, he says.

The wirehouses are acting like an “overly mature industry,” says Ed Swenson, COO of Dynasty Financial Partners, which has built a product and technology platform that now services about $7 billion from a handful of big-book advisors who went independent. He cites today’s landscape, where advisors can access comparable tools and services in the independent sector, as a major reason why leaving the big brokerages is a “paradigm shift that is firmly in place now.”

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