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10 ways that a new Schwab study demonstrates a nation of willing breakaways behind brokerage curtain

Brokers who know a breakaway like the idea of independence

Friday, November 20, 2009 – 1:33 PM by Brooke Southall
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Barnaby Grist: “The success of independent investment advisors has not gone unnoticed by the industry at large."

In virtually every study I have ever seen related to financial advisers, the survey respondents have been a.) rich people b.) independent advisors.

In Schwab’s newest study released at 8:30 a.m. EST today, the San Francisco custodian polls its richest new source of assets – wirehouse-type brokers – and asks these people to answer some telling questions.

Any information I’ve heard from these cloistered and sequestered employee-advisors until now was strictly of the “anecdotal” variety. This study quantifies the stories I hear and read. In fact, Schwab has produced some of the more interesting findings that I’ve seen in a while. Here are 10 of them:

1.) In its survey of 200 advisors who are employees of more than 15 major financial firms, 59% [presumably 118] of them say the idea of breaking away to independence appeals to them. In addition, nearly 50% of the surveyed advisors say that they would consider turning independent.

2.) This startling finding that perhaps half of Wall Street’s retail force is eyeing the greener pastures of becoming an independent advisor can be explained, according to Barnaby Grist, senior managing director of Schwab Advisor Services. “The success of independent investment advisors has not gone unnoticed by the industry at large and there are now more individuals and teams who are investigating whether the independent model is right for them,” he says in a release.

3.) More advisors (56%) would prefer to join an existing RIA than to start their own firm. This demand for a softer landing outside the wirehouse realm is creating a supply of firms ready to provide it, Grist adds. “Plugging into an existing firm is an increasingly popular choice, and more RIA firms are building business models and technology platforms that allow this to take place,” Grist adds in the release. “As a result, independence has become a viable option for a greater number of advisors.”

4.) Perhaps the most interesting finding in the survey is that there is a resounding common denominator for those advisors who are interested in breaking away. Of those respondents who know someone who is or has considered becoming an independent advisor, 77% find the idea appealing, according to Schwab’s release.

5.) Nearly half (47%) of all respondents know someone who is or has considered becoming an RIA, and just under half (46%) are familiar with the process of starting or joining an RIA. Of the group that is familiar with the process, 69 percent say that they are considering becoming an RIA. “There is still a great deal of education that needs to take place about the process of becoming independent and the resources that exist to help advisors run their businesses,” Grist adds.

6.) The responses would seem to dispel some of the myth that a breakaway prospect needs to be born with an entrepreneurial gene in order to succeed outside the safe confines of their mega-employer. “There is now a thriving industry that has developed to support RIA firms,” Grist says. Still, fears persist. Advisors surveyed cite having back office support (55%), obtaining new clients (39%), and having access to research and information to support investment decisions (30%) as the top three concerns about the notion of turning independent.

7.) Less than half (46%) believe their employer’s brand helps them acquire or retain clients. This finding backs up the statements I hear every day from advisors like Doug Swope, principal of the Swope Group in Wayne, Pa. who say they no longer see their clients benefiting from their wirehouse. “We didn’t find that our clients were benefiting at all from being part of a big firm,” he says. Swope was with Morgan Stanley Smith Barney until May.

8.) Worse yet for stock brokers, more than three-quarters (76%) have had to explain why their firm is still a good company to invest with. Almost 40% of the respondents say they work for firms that have gone through a merger or acquisition. Again, this backs up the anecdotes I hear that brokers are so back on their heels defending their employers that they can’t go on the offense and win new accounts and new assets in existing accounts.

9.) With their employing firms held in such low esteem, it’s not surprising to hear the next finding: Half of major firm advisors say that acquiring new clients is harder now than prior to the turmoil in the financial services industry.

10.) The advisors in this survey are precisely the kind that RIAs would like to see make the transition to independence considering that 52% of the advisors in the survey have more than 10 years of investment advisory experience. The median assets under management of the respondents is $84 million.

Stephen Winks

Stephen Winks

November 20, 2009 — 10:26 PM


The development of more mature RIA firms that (1) provide scale not possible in individual practices and (2) also afford a far superior advisor value proposition than is possible in a brokerage format, make the decision to leave a major brokerage firm easy. There is no problem in explaining the benefit of the advisor acting in the client’s best interest. These next generation RIAs, with tangible quantifiable advisory services support (process, technology, functional division of labor, statutory documentation, conflict of interest management and advisory services support by market segment) that does not exist in a brokerage format, will accelerate this dispora of brokers to advisory services.

The only difference in observation is, I am seeing advisors within brokerage firms with a half billion or more in assets are more interested in the RIA model than the average broker who has built their business primarily around transactions. They view the RIA model as being essential to their ability to continue to grow their business and to gain better control of their value proposition and portfolio construction. This is not possible within a brokerage firm because of the brokerage industry’s product focus, leaving a gaping leadership vacuum for prudent process, assistance in portfolio construction and advisory services support.

Client’s get it, but some how our largest brokerage firms have no conception of what is required to make continuous comprehensive counsel safe and easy to execute. In fact it is heresy to even put the necessary innovation on the table because it is disruptive in nature, thus the achilles heal of the brokerage industry that Barnaby Grist so abily sees.


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