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Big advisors drive solid year for breakaway wins at Schwab, Fidelity, Pershing and TD

Aggregators drive momentum in 2011

Thursday, January 27, 2011 – 2:54 PM by Brooke Southall
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Scott Dell'Orfano: The average is well up from what we saw at this time last year

More than 400 advisors or teams broke away to establish independent practices with the four largest asset custodians in 2010, giving Fidelity, Pershing Advisor Solutions, Schwab Advisor Services and TD Ameritrade a combined haul of more than $28 billion in assets from these new advisors for the year.

The numbers appear to be slightly lower than 2009’s records, as the number of breakaways from big wirehouse firms falls back to pre-financial-crisis levels. The growth in the independent space – which executives characterized as normal and sustainable – is being driven by large aggregators such as United Capital Financial Partners, HighTower Advisors and Focus Financial Partners.

Their active recruitment efforts are helping to bring a steady stream of bigger breakaways from in the door at the custodians.

Brand awareness

“There’s a lot more brand awareness with strategic acquirers like HighTower, Focus Financial and United Capital,” says Scott Dell’Orfano, national sales director for Fidelity Institutional Wealth Services of Boston. “...We think there’s a big upside.”

(RIABiz is taking a deeper look at the growing role that these serial buyers are playing in an article that will be published Monday or Tuesday.)

Executives also said the size of the breakaway teams continues to grow. At Fidelity, the average assets per breakaway in 2010 were approximately $83 million, a nearly 50% increase over 2009.

“While the absolute number of brokers going independent seems to have normalized to pre-crisis levels, we continue to see an increase in the number of large teams with bigger books of business making the transition,” said Michael R. Durbin, president, Fidelity Institutional Wealth Services, the nation’s second largest RIA custodian in a release. “Our pipeline of breakaways managing over $250 million is as strong as ever, and we only expect it to grow as more brokers explore their expanding options for independence.”

Here are the individual custodians’ results:

Multiple models

Fidelity reported that it won 146 individual brokers and teams managing $12 billion in assets and transitioned them to a range of independent business models in 2010. Those models include joining Fidelity RIA custody unit and custodying with the independent broker-dealers who use National Financial services as their clearing agent. About 50% of the breakaways joined an existing RIA and the assets going to the IBD channel was relatively small, according to Dell’Orfano.

Fidelity also had one major breakaway broker from its own broker-dealer. See: A HighTower-like consolidator rises from Texas ground. Fidelity does not break down the totals between these advisory channels.

Pershing had a big fourth quarter of 13 new teams with a haul of $2.4 billion of assets, which contributed to a year in which the Jersey City, N.J.-based custodian brought aboard $4.84 billion of assets from 30 teams. Pershing does not count RIA assets that come aboard from IBD reps whose trades clear through its clearing division, and its tally would have been substantially higher had it counted these assets, according to the company. It also added 10 breakaways who joined existing RIA firms on the PAS platform representing another $1.4 billion of assets. (The latter stat was added after publication.)

Schwab Advisor Services landed 163 teams and total assets of $12.6 billion in 2010. Thirty-six percent of those teams joined an existing RIA. Most notable was its growing success in attracting reps from independent broker-dealers. Its haul jumped 45% from 38 to 55 teams. See: IBD reps are new wave of breakaways to the RIA channel, say some recruiters and custodians

TD Ameritrade declined to disclose its new assets but attracted 70 breakaway advisors in its first fiscal quarter ended Dewc. 31. The company’s breakaway total was 40% higher for its fiscal year 2010 that ends Sept. 30 than the same time period a year before.

Drop in sheer numbers

The sheer number of breakaway advisors in 2010 is down approximately between 8% and 30% from 2009, based on the results from the two largest custodians, Schwab and Fidelity.

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 brought on 191 teams in 2009, including ones on the platforms of broker-dealers who use its National Financial Services subsidiary for clearing trades. These totals were stoked by the flight from wirehouses after the 2008 crash.

Tim Oden: Sales activities were picking up in the third quarter.
Tim Oden: Sales activities were picking
up in the third quarter.

The outlook for 2011 is positive based on the number of brokers telling custodians that they have set departure dates from their broker-dealers, deals that did not close in 2010 but are still in progress, the rising momentum of aggregators and continued stumbles by broker-dealers, according to Tim Oden, senior managing director, business development for Schwab Advisor Services. He is based in Newport Beach, Calif.

“Sales activities were picking up in the fourth quarter and we’ve seen that trend continue into the first quarter — with advisors making plans to leave. That bodes well for 2011,” he says.

The SEC reported that Merrill Lynch was fined $10 million for front-running trades and Morgan Stanley Smith Barney sparked some phone calls by its brokers by reshuffling its bonus system.

80% success rate

Pershing is likely to bring aboard a similar number of teams in 2011, according to Mark Tibergien, CEO of Pershing Advisor Solutions. He says his company wins four out of five RIAs when it goes head to head with competitors but that it doesn’t get up to bat with the same frequency as rivals like Schwab, Fidelity and TD Ameritrade.

“What they do well is attract the mass affluent retail rep. We attract the larger advisory team that wants their own brand” rather than depending on their custodian, he adds.

Schwab has advisors who choose different brand strategies, according to Oden.

“We hear from advisors that the strength of our brand is important but several of our clients have had success building their own brands — big clients especially,” he says.

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Mentioned in this article:

Pershing Advisor Solutions
Asset Custodian
Top Executive: Mark Tibergien

Jeff Spears

Jeff Spears

January 27, 2011 — 3:35 PM

Wallace Hall Sr. – Founder and CEO of a brokerage firm in Dallas (my hometown). Mr. Hall is in his late 70’s and still comes into the office every day.

Jeff Spears

Jeff Spears

January 27, 2011 — 3:25 PM

Great article.

Our experience is that the larger broker teams are not interested in the roll-up business models because the economic benefits of owning their own practice versus going a roll-up the are too great. I agree with Mark Tibergien.

As my mentor always told me, “that’s what makes a market”.

Elizabeth MacBride

Elizabeth MacBride

January 27, 2011 — 3:29 PM


Who is your mentor? I’m curious.

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