Observers of the registered investment advisory business say that many of the advisers leaving the larger legacy brokerage firms are doing so at the urging of their clients and former colleagues.
“Clients want a purely unconflicted relationship with an adviser 100% of the time,” said Robert Matthews, a former wirehouse executive who is CEO of Fieldpoint Private Bank & Trust. Wirehouse clients “don't feel that way now; they have their guard up.”
And having former colleagues recommend the independent route is a huge influence on potential breakaways, observers said.
“The independent ranks have grown so much; everybody is one degree of separation away from someone” who's already gone independent, said Tim Oden, senior managing director at Schwab Advisor Services.
Cerulli Associates Inc. expects the asset market share for independent RIAs to grow to 13.2% this year and reach 14% next year.
The gains will come at the expense of the wirehouses, which will lose 2.5 percentage points from their estimated 37.5% market share this year, according to Cerulli.
'Distribution Firms'
The big legacy firms “are losing the advisory mandate and are being left with a product mandate,” said Mr. Matthews, who formerly ran Citigroup Inc.'s Global Wealth Advisory Services division. “They're being turned into distribution firms.”
As Wall Street returns to some semblance of normalcy after the turmoil of the financial crisis, investors and brokers are more inclined to make the move to independence, according to John Furey, principal of Advisor Growth Strategies LLC, a mergers-and-acquisitions consultant.
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Marketing efforts from the big custodians have created awareness about the RIA business, he said. And those efforts are making inroads among wirehouse advisers, who traditionally haven't paid much attention to the independent world.
“At my local Merrill Lynch [Wealth Management] office, three-quarters [of the brokers] know what an RIA is,” Mr. Furey said, adding that wirehouse advisers are much less leery of the independent model because they've seen colleagues do it, he said.
Regulatory uncertainty over adviser oversight has been a speed bump for some advisers considering the transition, observers said.
But a countervailing force that is pushing brokers out of the broker-dealer world is what they consider overzealous compliance, said Brian Hamburger, managing director of MarketCounsel LLC, a compliance consultant.
“This is the first year when we've heard [of breakaways] running away from compliance,” he said. “Every paper is being reviewed, or social networking restricted … It's because broker No. 9,942 is an idiot.”
Aggregator firms such as HighTower Advisors LLC are having an increased impact in transitions.
Aggregators are “consolidating their strength and bringing in larger-producing adviser teams [from wirehouses], along with a layer of support and technical resources that those advisers are used to,” said Tyler Cloherty, a senior analyst at Cerulli.
“Scale begets more scale,” lowering costs for breakaways, he said. “We expect aggregator growth to continue and a few more firms to start pursuing advisers.”
'Critical Mass'
Some aggregators help wirehouse representatives buy out their retention deals, Mr. Oden said.
“Our pipeline is overflowing,” said Mike Papedis, executive vice president at HighTower. “This year alone, we've consummated more assets than all of 2011.”
The hybrid firm has announced that new recruits have brought in $4.8 billion in assets this year, bringing its total to more than $20 billion.
In the four years since it was founded by Mr. Matthews and some other wirehouse executives, Fieldpoint has grown to 17 advisers and $3 billion in assets under management.
In one notable deal, Affiliated Managers Group Inc. in March took an equity stake in one of the industry's biggest RIA firms, $10 billion Veritable LP. It was the first wealth management acquisition for the publicly traded AMG, which owns stakes in money managers.
On the merger front, observers expect more RIA combinations.
Advisers are regaining confidence with the improved market, Mr. Furey said. “Growth is back,” he said.
Mr. Hamburger cited the April merger of Savant Capital Management LLC, with $2 billion in assets, and The Monitor Group Inc., which has about $460 million, and Ron Carson's national ambitions for his firm, Carson Wealth Management Group.
“It's a whole new dynamic that's out there,” Mr. Hamburger said.
Some mergers are being driven by the desire to distribute regulatory costs more widely.
“Compliance costs are just staggering,” Mr. Matthews said.
Advisory firms “need a way to spread that cost over more revenue. I think we'll see more firms combine,” he said.
djamieson@investmentnews.com
