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Schwab and TD Ameritrade pipelines brim with breakaway prospects

Growth rate accelerates despite slowing attrition at wirehouses

Tuesday, January 26, 2010 – 6:25 AM by Brooke Southall
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Barnaby Grist says that wirehouse data on attrition is accurate but not telling for breakaways

Brooke’s Note: Everybody is happy. Top wirehouse executives can [and are] pointing out with pleasure that attrition levels have plummeted at their companies. With advisory forces numbering in the 15,000 range, the loss of a couple hundred brokers here and there is statistically insignificant at Merrill Lynch, UBS and Morgan Stanley Smith Barney. Top custodial executives are happy, too. An inflow of a few hundred defecting brokers is a tonic for earnings. The bonus for the executives at TD Ameritrade, Fidelity, Schwab and RBC is that their wirehouse counterparts are happy. That means that nobody is going to try to ruin their party.

Both Schwab Advisor Services and TD Ameritrade Institutional Services entered 2010 with the next best thing to assets in the till – vastly fuller pipelines of breakaway broker business.

Schwab currently has 300 to 400 teams of brokers in its pipeline and these brokers advise a combined $30 billion of assets. This is a 50% increase from the pipeline Schwab had at this time last year, according to Barnaby Grist, senior managing director of Schwab Advisor Services.

The San Francisco-based custodian includes brokers in its pipeline totals if they have engaged in a series of substantive conversations with people from Schwab.

In addition, the Schwab employees have to believe that those communications will lead to the advisors bringing their assets to them during the course of the next 12 months. Schwab has about $590 billion of assets in custody.

$210 billion pipeline

TD Ameritrade’s pipeline of potential breakaways has grown 50% from this time last year. The Jersey City, N.J.-based custodian figures that its pipeline today stands at $210 billion, up from about $140 billion a year ago, according to the company.

TD defines its pipeline as brokers with whom it has had some sales contact. The custodian has about $100 billion of assets.

Grist believes that the Schwab and TD numbers are affirming of each other despite the differing outlook on what constitute “pipeline” assets. Each company is seeing a 50% jump.

“I think we’re seeing a continuation of the momentum from Q3 and Q4,” Grist says. “Year over year, we see a significant increase over what we would normally see this time of the year.”

In 2009, Schwab had a record year, supporting 172 new advisory teams as they either started or joined an independent firm, a 40% increase from 2008. Fidelity 191 teams in 2009, including ones on the platforms of broker-dealers who use its National Financial Services subsidiary for clearing trades.

Newly independent advisors were responsible for $13 billion of the $41 billion in net new assets Schwab Advisor Services secured in 2009, according to data released yesterday by the custodian.

Neck and neck

“We are neck and neck” with our main competitors, says Kristin Petrick, spokeswoman for TD. She declined to give specifics other than to say that recruitment of breakaways is up 30% over last year.

Schwab’s momentum is part of a bigger trend. It has gotten more than 500 advisor teams to convert to independence since 2005, according to the company’s release. Fidelity won 600 breakaways since 2005, accordiing to its spokesman, Steve Austin.

The 500 ex-brokerage teams at Schwab manage $45.5 billion of the total $590 billion currently in custody at Schwab, according to the Schwab release.

These breakaway teams also represent outsized contributors to some specialized pools of assets at Schwab. They represented 36% of net new assets into Schwab Advisor Service’s personal trust reporting system in 2009, and 49% of net new assets into the administrative or directed trustee option, from the trust department of Charles Schwab Bank.

Last week, James Gorman, CEO of Morgan Stanley and Sallie Krawcheck , head of Merrill Lynch’s brokerage division, made comments about how the attrition dramatically declined at their firms. Gorman even declared that the poaching era is permanently ended among wirehouses.

Grist agrees with them to a point.

“I’m sure the numbers they are looking at are accurate,” he says.


Yet small broker attrition by wirehouse standards can be a bonanza for custodians bringing them aboard.

What muddies the picture is that on the order of 80% of the attrition was from one wirehouse to another, according to Grist. It was rational for brokers to switch firms when it was required to get signing bonuses.

“You about had to move every seven years,” he adds.

But the Bank of America/Merrill and SB/MS mergers resulted in brokers getting bonuses without ever leaving their employer, hence the incentives to leave are gone for a wide swath of brokers, Grist explains.

The advisors looking to go independent could have gotten these kinds of bonus checks before had they wanted to, merely by switching employers.

They didn’t, or they deposited their bonus money in a bank account to keep options open. The ones inclined to turn independent are still in that mindset and are quickly filling a swelling pipeline, he says.

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Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Frederick Van Den Abbeel

Frederick Van Den Abbeel

January 27, 2010 — 12:03 PM

I believe Wirehouse Advisors are looking beyond the incentive checks being offered and are looking long-term and realizing the “net-net” benefit of operating their own RIA as opposed to being beholden to one firm of business model. At the end of the day, it’s all about what system the Advisor is most comfortable operating in. Having spoken with many Advisors myself @ TradePMR, I echo some of the research outlined in this article. Good Job Brooke!

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