Story's impact could exceed New York Times article about Smith Barney breakaway two years ago

January 5, 2010 — 7:26 PM UTC by Elizabeth MacBride


Yesterday’s page one Wall Street Journal feature story about breakaway brokers was a sign that RIAs finally have been recognized as a powerful force on the financial services scene. The story may spur many brokers or clients on the verge of leaving wirehouses to make the move.

Observers say this is the first time in their memory RIAs have been on the front page of the nation’s premier business publication. Viewed in the context of the history of the last decade, the story felt like vindication for people who have helped nurture independents, or taken the risk themselves.

But, many advisors and the people who work with them are forward looking. And to them, the story was a portent, mostly positive, of the industry’s future growth. The story makes it more apparent than ever that the world of RIAs, once something of an exclusive club, is going mainstream.

“Many of us in the independent space will look to it as a potential tipping point of something bigger – not just the breakaway trend, but the independent advisor model more broadly,” says John Furey, principal of Advisor Growth Strategies.

To understand the story’s significance, consider three groups of people that the article will reach, and could affect.


Brokers for whom the WSJ is tantamount to a religious text, may see going independent as a more viable option as a result of the story.

The mere fact that the movement is large enough to make the front page speaks volumes. The icing on the cake, from the perspective of custodians and recruiters who are trying to lure brokers to the independent space, is that the story made becoming an RIA look so good.

The article, “More Brokers Flee Big Firms, Taking Investors With Them,” told the stories of brokers large, medium and small, and highlighted the positive experiences.

Recruiter Mindy Diamond, CEO of Diamond Consultants, is already planning how to use the article in her conversations with potential breakaways.

“This is like a home run, from my point of view,” she says.

She believes the impact of this story will be similar to a major piece that ran in the New York Times two years ago, detailing the move from Smith Barney to Convergent of Lori Van Dusen.

“That sent shock waves through the industry.”

Coverage of RIAs starts off the 2010s with a bang by landing on page 1A of the Wall Street Journal
Coverage of RIAs starts off the
2010s with a bang by landing
on page 1A of the Wall
Street Journal


The story will also reach the WSJ’s affluent audience, many of whom are clients at the wirehouses. Last year’s financial meltdown left many thousands of wealthy people with the uneasy sense that Wall Street’s business model was basically a huge self-dealing scheme, measured in the trillions of dollars. But where to go? This story is likely to give more people the sense that there is a viable alternative to the wirehouses.

The article even tracked down a client, Steven Schwalb, who initially didn’t follow a breakaway (a broker’s worst nightmare) but eventually made the leap. Consider:

But he says he didn’t develop as good a relationship with his new Merrill broker, so he got back in touch with Mr. Doe and moved his money to Gratus. At Gratus, Mr. Schwalb says, he has access to a wide range of mutual funds and other investments, with lower commission costs than at big brokerage firms. The Schwalbs pay Mr. Doe an annual fee to monitor their finances, including advising them on all investment and financial-planning decisions.


The worst fear of players in the independent space is that the wirehouses will begin competing hard against the RIAs. The Wall Street Journal article may indeed convince some executives to take independents more seriously.

Don Trone, CEO of Mystic, Conn.-based Strategic Ethos, says that the wirehouses may eventually begin training their brokers as fiduciaries as the big companies try to tackle the larger issue of a breakdown in trust.

“What little trust the investing public had in Wall Street has evaporated, and it may take years to restore,” he says. “In the meantime, brokers are finding it increasingly difficult to defend a system and culture that appears to be fundamentally flawed. It is as if ‘Independence’ has become synonymous with ‘integrity’.”

“In order to retain top brokers wirehouses are going to need to help brokers address trust and client loyalty issues,” he adds.

The WSJ story, however, reveals little sign that the wirehouses are worried enough about the breakaway trend to make major changes in their business model.

Consider this paragraph:

The big firms say they are poised to rebound and that they wanted to push out many of the departing brokers because they weren’t bringing in as much profit as others. “The majority of departures have been people with below-average revenue production,” says a spokeswoman for Morgan Stanley Smith Barney.

The story quotes from comments made by Robert McCann, chief executive of UBS’s U.S. brokerage arm, at a conference.

“I think that we have capabilities in this business to be able to do things for clients that the boutiques will just not be able to do.”

Bob McCann believes wirehouses can "do things for clients that the boutiques will just not be able to do."
Bob McCann believes wirehouses can "do
things for clients that the boutiques
will just not be able to

Yet, neither McCann nor the writer of the WSJ story explored whether there are differences between the services offered at an advisory and a wirehouse.

“That felt like an uneducated statement to me,” says Diamond. “Advisors get access to best-of-class services.”

See McCann plays his first cards at UBS The article details the retention plan he rolled out just before Christmas as well as requirements that will make it harder for smaller producers to stay.

Watch for a wave of stories

One final point: This is most likely the first of a wave of stories about the size and importance of the RIA movement. That’s because the statistics are finally catching up with the trend. The article noted that 2009 was the first year Boston-based research firm Cerulli Associates tried to measure the movement of money from brokers leaving the major firms. Last year, $188 billion flowed into the independent space, according to Cerulli.

As more data accumulates, other media will follow the Wall Street Journal’s lead to write about RIAs. In turn, that will mean the conversation about how money ought to be managed up to a higher pitch.

Mentioned in this article:

Diamond Consultants
Top Executive: Howard Diamond

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