Breakaway broker signings rocket ahead in July

The year-long logjam in recruiting big brokers to independence is breaking up.

Large wirehouse teams with $100 million or more of assets are signing papers or at least setting dates to become RIAs, according to top recruiting executives employed by Charles Schwab Advisors Services, TD Ameritrade Institutional, Pershing Advisor Solutions and Fidelity Investments.

“Something changed dramatically at the start of June,” says Barnaby Grist, managing director of strategic development at Schwab. “It was like the teams came out of hibernation. We’re talking to all these bigger teams [again after suspending serious conversations]. This is the beginning of the S-curve when things are really taking off.” An S-curve is a rapid, exponential increase in sales for a period of time followed by a leveling off, according to BusinessDictionary.com.

For the first six months of 2009, there were precious few teams with more than $50 million of assets under management taking the leap to Schwab, he adds.

The same dramatic change in recruiting breakaway brokers is apparent at TD Ameritrade Institutional, says Tom Nally, managing director of institutional sales for the Jersey City-based asset custodian.

“It’s shifting from conceptualization to implementation mode,” he says. “[Brokers are saying]: let’s get the action plan in place.”

TD Ameritrade has a pipeline of $140 billion of assets, which represents the combined holdings at practices that it is engaging in discussions, Nally adds.

The breakaway momentum is suddenly powerful enough that some teams are making decisions to break away now even if they won’t make the move until November, says Scott Dell’Orfano, executive vice president of sales for Fidelity Institutional Wealth Services.

“There were no decisions being made a month ago,” he says.

Scott Dell’Orfano: Decisions are being made
now for November breakaways

This big uptick in the breakaway trend came none too soon, according to recruiters. Custodians were being tortured by the unprecedented expressions of interest by hundreds of brokers calling their sales forces. The activity never seemed to amount to much.

There was a sense that maybe the breakaway trend had been misjudged and that only an outlying group of brokers with born entrepreneurial proclivities were true candidates for independence.

The spectrum of breakaway candidates is broadening in a way that bodes well for the RIA model, according to Nally.

“Originally, we would just get the broker that was entrepreurial in spirit,” he says. “That’s really shifted. Now all the brokers are aware of the RIA model.”

Since the June shift in breakaway sentiment, Pershing Advisor Solutions has scheduled four breakaways to move their books of business there in the next month, says Jim Dario, managing director of business development and relationship management for the company.

These four teams – all of which signed since June — are scheduled to resign from their current firms on Aug. 14, Aug. 28, Labor Day weekend and mid-to-late September, bringing with them $1.5 billion in assets. Pershing brought on twelve wirehouse teams with a combined $1.2 billion of assets under management for the first six months of 2009.

“It’s just [incredible] how fast June and now July have come on” in terms of breakaway activity, Dario says. “All at once – the firms considering the market for independence decided this was the time to do it.”

Tom Nally: Wirehouses are still stirring
the breakaway pot

Considering how rapidly the breakaway market shifted direction, it is hard to say definitively what caused it to happen, Grist says.

Yet it is certain that the improving market conditions are at the root of it, says John Furey, president of Advisor Growth Strategies LLC in Phoenix, Ariz. and former head of Schwab’s breakaway program. The recovery makes for a much better environment to break the news to clients.

“It’s hard to say to clients: by the way, your portfolio is down 30% to 40% and the company I’ve been with for 20 years is terrible,” he says.

The surging stock market market has also instilled brokers with the confidence that they need to cut the cord with their employers, adds Furey whose firm assists brokers in transition by becoming a temporary chief operating officer for their firms.

“They had to convince themselves that they had enough revenues to support a start-up,” he says. “Now there’s a belief that things are going to get better.”

Markets aside, the dramatic pick-up in breakaway activity is also attributable to the unstinting instability at brokerage firms, Nally says. Brokers have less and less patience for it, he adds.

“Wirehouses and other brokers are still making decisions that are stirring the pot,” Nally says. “[For example] LPL jettisons Pershing’s clearing platform and Sallie Krawcheck comes to Merrill Lynch. The environment has really helped push [brokers] in this [RIA] direction.”

Indeed, even the big brokers at independent broker-dealers are receptive to an RIA pitch these days, Dell’Orfano agrees. “All the stars are aligned for the RIA business in general,” he says. “We even see [good breakaway candidates] from the IBDs.”

This shift in the market is exciting but it really is just the beginning, he adds.

“We’re all privileged to be in a [market] that’s growing exponentially,” Dell’Orfano says. “I think it’s going to continue for the next 10 years.”

Editor’s note: Missing from the comments of Grist, Dario, Dell’Orfano and Nally in this article was one important ingredient — their tone of voice. These four men had a tremendous lilt of excitement and optimism about the good news they were reporting on behalf of their firms.