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Part II: The things 11 through 20 that show the RIA market is really heating up in 2010

Everything from New York Times recognition to accelerating executive hires suggest the RIA realm is getting hot

Tuesday, March 23, 2010 – 5:46 AM by Brooke Southall
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Custodians are aggressively hiring good talent to keep up with RIA demand. Schwab's hire of Nick Georgis was a good example of that.

Brooke’s Note: So many of us have the strongest intuitive feeling that the RIA movement is big, real and good for society. We believe that the RIA business is headed in the right direction but that its best days will make today’s look like nothing. Yet it’s not always easy to explain why we feel that way. With items 11-20, I present a deeper body of evidence for why this may happen and for why so many people are gearing their lives and businesses toward a time when RIAs provide the dominant advice model in the United States. To read the first 10 reasons why RIAs are heating it up, click here.

In the first article of the two-part series, I concentrated more on the big picture. Here are a host of more eclectic signs that the RIA movement is catching on with advisors, vendors and consumers alike.

11.) The first Wall Street Journal issue of 2010 was about the phenomenon of RIAs. Read: Page one Wall Street Journal article is a home run for the RIA industry. Earlier this month, The New York Times featured RIAs on the front page of the business section. Read: New York Times uncovers deeper fiduciary truth by interviewing wirehouse brokers. Mainstream media tends to pick up on trends long after they have been established. Both of these newspapars cater to affluent, sophisticated investors and both articles portrayed RIAs in the most favorable light. In other words, RIAs scored an extraordinary PR victory – the best in their history.

12.) The variety of brokers becoming RIAs is creating more role models for would-be breakaway brokers. Consider teams like David Hou and Mark Sear, who left Merrill Lynch in 2008 to form Luminous Capital of Los Angeles, and Charles Huebner and David Jagger who left UBS last month to form Pointe Capital Management in Grosse Pointe, Mich. See: Two senior UBS brokers pass on retirement to pursue aggressive breakaway plan. In the case of Hou-Sear, they were among the more celebrated teams at Merrill, and they benefited from all the perks of being favored by a big corporation, not to mention getting client referrals from the company’s top brass. In the case of Huebner and Jagger, there wasn’t even a wisp of suspicion on the part of UBS that they would consider breaking away. They exemplified loyal brokers, having been with the organization back to the Kidder Peabody and Paine Webber days. Analysis only takes a broker so far in the decision-making process of leaving the wirehouse. Closing the deal often depends on hearing from a pioneer that it’s all going to work out fine. These big teams field phone calls from people back in the wirehouse world. But their example alone is enough to embolden more brokers to look closely at independence as a possible career option.

13.) The pipelines of brokers who are considering becoming RIAs have never been bigger. For example, Schwab Advisor Services characterizes its pipeline as numbering between 300 and 400 teams, up 50% from the beginning of 2009. TD Ameritrade Institutional also says its pipeline has grown by 50% in the same time period. It stands at $210 billion, up from $140 billion. TD defines its pipeline as brokers with whom it has had a marketing contact. Schwab’s pipeline is defined by advisors with whom it has had serious discussions.

14.) The RIA business has become big, dynamic and substantial enough that it is developing its own mergers and acquisitions industry to serve it. Fidelity Institutional Wealth Services is still working on launching a formal M&A program [it assists advisors informally already]. Schwab has had a substantial one for years, which David Devoe heads up. TD Ameritrade and Pershing also have smaller efforts in this area. Another sign that the industry is gearing up for an onslaught of M&A activity was the recent formation of Mitchell Hartley of Atlanta and Santa Rosa, Calif. Read: New M&A firm with Putman Lovell alumni appears on the wealth management landscape. There are other substantial firms dedicated to this discipline including Gladstone Associates LLC of Fort Washington, Pa., ECHELON Partners of Manhattan Beach, Calif. and Advice Dynamics Partners of San Francisco. Though some statistics only show about 100 M&A deals happening on average in the RIA realm annually, Dan Seivert, CEO of ECHELON, calculates that there are probably closer to 250 transactions that actually occur. He discusses this subject in more detail in the article 8 major points to understand about the M&A market at the start of 2010.

15.) RIAs are finding new ways to find each other. RIAMarketplace, a LinkedIn-supported online community of RIAs, recently passed the 3,000-member mark. RIACentral, a standalone social network for advisors featuring photos in a Facebook-like format, launched in 2010 and already has 350 members. Also perceiving this need, my partners and I launched RIABiz last August and our readership and subscriptions are both on the steady rise. Our readership has doubled just since the start of 2010.

16.) RIAs are increasingly becoming the bread and butter of recruiting firms. Recruiters like Howard Diamond of Diamond Consultants in Chester, N.J. say that the inter-wirehouse poaching that was once a mainstay of recruiters has cooled considerably. A major incentive for a Merrill Lynch broker to take his or her book of business to UBS was the bonus that would be paid for completing the move. But many of the biggest, most poachable brokers – especially from Merrill Lynch and Smith Barney — received these bonuses from their own wirehouses as incentive to stay put in the wake of mergers. Merrill Lynch was acquired by Bank of America and Smith Barney was purchased by Morgan Stanley.

“Perhaps the recruiting wars are over but the brokers wanting to go independent still want to go independent,” Diamond said in January. “That market is determined by other factors like building equity, gaining autonomy, open architecture, quality of life and building a legacy.”

17.) Alternative investments are becoming a bigger deal for high net worth investors and RIAs are becoming favored purveyors of them. Asset custodians are still wrestling with ways to custody these assets but the matter seems to be settling itself. After some friction with advisors, Schwab seems to have arrived at a solution that involves keeping assets with trust companies. Pershing Advisor Solutions has created a nine-step process. Read: Pershing is working to create a better alternative assets experience. I have also been contacted by two separate companies that profess to be in the process of creating platforms whereby an RIA can build a portfolio out of top-drawer alternative investments. More to come.

18.) There is a movement toward RIAs migrating upstream into the most sophisticated reaches of financial advice. For instance, many RIAs are becoming multi-family offices. These are boutiques developed for the purpose of handling the needs of a handful of ultra-affluent families. Because the wealth in this country has been concentrated in so few hands, there are green pastures for advisors that supply this level of pampering. Both Fidelity and Schwab have recognized this trend and assigned executives to specifically manage the needs of RIAs who run family offices. Janelle Sallenave heads the effort for Schwab and she wrote this column for RIABiz on the subject: Look before you leap: Six questions you must consider before becoming a multifamily office.

19.) Breakaway brokers have more options. TD Ameritrade, for instance, now sees the majority of its wirehouse prospects join existing firms. Before, the world of breakaways was largely limited by the number of people who could dig deep to find their entrepreneurial selves. Now the workaday broker who got into the business for its simplicity in the first place can still break away and maintain that by simply crawling under a different corporate umbrella, though one with a higher payout, fewer conflicts of interest and less of a compliance straitjacket.

20.) Tremendous energy is being exerted to get the right executives into the right places in the RIA custody business, a sign of the importance the custodians are placing on RIAs. Charles Goldman, Joe Giordano and Mike MacWade are all departing Fidelity Investments. Maggie Serravalli is now overseeing all advisory service there. Mike Durbin is now firmly in charge of the RIA business at the Boston-based giant. Schwab made Bernie Clark head of the RIA custody business at Schwab last month. Advisors still felt that there were not enough familiar faces running their business. Schwab just hired back one of the most familiar faces of all – Nick Georgis, its former head of sales stretching back to the early 1990s. Many Schwab RIAs were greatly placated by the move.

Scottrade is still undergoing a search for a new RIA chief to fill the position vacated by Doug Talir. Terry Reitan left Trust Company of America in January and his position was filled by Frank Maiorano, a former Schwab executive with a career’s worth of RIA experience. Shareholder Services Group nabbed Schwab’s head of technology, Dan Skiles last year. Mark Tibergien is still only about two years into his new job heading Pershing Advisor Solutions after replacing John Iachello.

Editor’s Note: I doubt 20 items does justice to the depth and breadth of the ascendancy of the RIA movement. Please send me some thoughts that I can add to the next list that is forming in my own mind as I type this footnote. You can reach me at brooke@riabiz.com.


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