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Fidelity weighs in with breakaway results reinforcing the big-advisor trend

Are cost-cutting wirehouses creating a farm system for top entrepreneurial teams?

Thursday, July 29, 2010 – 3:47 AM by Elizabeth MacBride
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Scott Dell'Orfano: Bigger teams are more educated, thoughtful, diligent. They’re asking pertinent questions.

Elizabeth’s note: I never got into the journalism business to cover sports, but writing and editing RIABiz stories in the past two weeks felt like I was following Major League baseball. The big three custodians released statistics on the number of breakaways, the amount of new assets they took in and the size of the breakaway teams they are attracting. In the grand scheme of things, the numbers may have more to say about the hyper-competition in the custody world than which custodian actually makes the best home for any given advisory team. But the fact that all three custodians released their stats around the same time allowed us to draw some interesting conclusions about trends in the breakaway movement.

Reinforcing the idea that larger teams are breaking away from wirehouses, Fidelity Institutional Wealth Services yesterday reported that it helped 13 teams with more than $250 million in assets transition to independence in the first six months of 2010.

The news came a week after Schwab Advisor Services reported that it netted eight breakaway teams with more than $250 in AUM in the first six months of 2010.

Fidelity garnered nearly $7 billion in new assets over the period. Schwab reported $8 billion in net new assets. The numbers are not strictly comparable, however, as Fidelity’s include advisors on its custody and clearing platforms. TD AMERITRADE also reported record results: the addition of 212 advisors in the first nine months of its fiscal year. See: Both Schwab and TD Ameritrade smash breakaway recruiting marks from last year.

Fidelity said that in the first six months of 2010, 95 brokers and teams brought their business to Fidelity, either by starting an RIA, joining an existing RIA firm on Fidelity Institutional Wealth Services platform, or joining a broker-dealer client of National Financial, Fidelity’s clearing business.

The big numbers provide some evidence that the breakaway movement is still growing. The most interesting change was that a significant number of big teams were making the leap from the wirehouses. Even one or two years ago, such moves were relatively rare. But in its first year of publication, RIABiz has written about seven breakaways with more than $250 in AUM. See: The Breakaway Stories section.

Viral marketing

Scott Dell’Orfano, executive vice president of sales for Fidelity Institutional Wealth Services, said he believes big teams’ successful example are luring other advisors to consider independence. “It’s almost like viral marketing,” he said.

Frank Pizzichillo, RIABiz’s Leading Indicator columnist, said he has also seen the trend in his position as director of business development at MarketCounsel, a regulatory, compliance and consulting firm in Englewood, N.J.

He says the bigger teams showing up among the breakaway ranks reflects the trend among wirehouses to form advisors into internal teams. Wirehouses have been consolidating teams to save money – in fact, that was one factor in a Merrill Lynch breakaway that RIABiz recently covered. See: Two years later, a Merrill Lynch breakaway team has no regrets.

“They’re creating backup support, multiple producer, multiple administrative staff teams,” Pizzichillo said. “The teams are coming to rely on each other within the wirehouse.”

In essence he said, the wirehouses are creating a farm system for entrepreneurship.

One more factor could be at play in the flight of big teams from the wirehouses: the breakaway industry has become more skilled at recruiting them.

Dell’Orfano spoke of Fidelity’s well-oiled recruiting machine, including a specialized sales team of 8 that focuses solely on advisors with $500 million in AUM or more.

Polished process

Fidelity’s recruiting process typically begins with an advisor’s phone call somewhere into the Fidelity universe. Once they are transferred to the sales team, the company schedules a four- to five-hour consultative meeting that helps the company figure out the next steps for the team.

The process usually takes 4-6 months, he said. In any given week, there are 3-5 teams at the Fidelity corporate headquarters in Boston, exploring their options.

The increased size has a few interesting implications for the industry.

For one, Dell’Orfano said, he is beginning to see a wider variety of business models. Larger teams have the wherewithal to consider becoming aggregators and consolidators. See:Bob Veres’ vision: Scalable, multi-partner RIA firms will be profitable and powerful enough to beat the wirehouses.

Because larger teams are more likely to be hybrid and to keep some commission-business, even years down the road, the demand for easy-to-use hybrid platforms is likely to continue to grow. It’s already a significant point of competition among the custodians.
At a firm with $500 million in AUM, Dell’Orfano said, he’s likely to see a mix that’s 80/20% or 75/25%.

And finally, the larger breakaway teams require custodians and other service providers to be on their toes.

“They are more educated, thoughtful, diligent,” he said. “They’re asking pertinent questions.”

The one he hears most commonly: “What question haven’t we asked that we should have?”


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Mentioned in this article:

MarketCounsel | Hamburger Law Firm
Consulting Firm, Compliance Expert, Legal Services for RIAs
Top Executive: Brian Hamburger

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

Brinker Capital
Asset Manager for RIAs
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