The Exodus: Starting Now

I recently did some talking with Kristen French, the features editor over at Registered Rep.

Kristen was interested in understanding if brokers leaving Wall Street is truly a secular trend with legs or not. From my vantage point, I say, yes. Here’s how it’s starting to play out…

Registered Rep:

In 2009, in the wake of arguably one of the biggest financial crises this country has seen since the Great Depression, over 3,000 financial advisors left Merrill Lynch, UBS, Morgan Stanley and Wells Fargo to start life over at an independent broker/dealer or RIA firm, according to data provided to Registered Rep. by Meridian-IQ*, an independent research firm that used SEC data to tally results. That’s about 6 percent of the total wirehouse FA population.

What most of the keepers of the status-quo in the industry say in Kristen’s article: ‘Hey look we’re still here, we’re still the biggest, and nothing has killed us yet.’

And we see how that one worked out for the dinosaurs too, right?

Seriously though, while that statement is true, what they don’t bother to tell you is many of the larger teams are the ones breaking ranks, or making the move to another firm for one last check before they inevitably do breakaway.

A real-world example of the ‘too big to worry’ defense is Microsoft. And if you look at Microsoft in any two year period for the last ten years things look like business as usual — nothing to see here; nothing but slower growth or ‘normal’ attrition. But when you look at the longer timeframe as a whole, you see companies like Apple, Google, and others making some serious inroads in Microsoft’s sacred cow divisions— and these competitors have also been busy inventing new products along the way that Microsoft isn’t even competing in. Similarly, on Wall Street, I think we will continue to watch a handful of regional firms, new companies & products chip away at their market share too.

2008 tarnished every single “big brand” name under the sun. Why anyone thinks their money is ‘safe’ or being soundly managed as a function of it being at “Big Name Firm” just isn’t part of the reality most see or experience anymore. Wall Street really has shot themselves in the foot. But it will take a long time for the wound to be fatal — it will take a long time for the money to spill out of their branches. It will take a long time for the advisor population to see things the way I did (emphasis mine):

(Yours Truly) Bell left Morgan, he says, because he was tired of the firm constantly tweaking and changing the rules on products, compensation and focus and tired of apologizing for things he had nothing to do with.

Wall Street’s reign isn’t going to end with a bang. The bankers’ death will be a slow, painful, whimpering one & it’s only just beginning.

A survey from Aite Group that got 75 responses from wirehouse advisors suggests there may be about 550 top advisors at Merrill and Morgan who are currently locked in by retention packages and are more than 50 percent certain they would like to switch to an independent firm in the next 18 to 24 months. That’s about 2 percent of all financial advisors at each firm, but it represents at least 4 percent of overall revenue, according to Aite’s calculations. The biggest reason given for wanting to break away: a higher payout (22 percent). The second biggest was “uncertainty at current employer” (16 percent).

“We believe that 2012 could be a landmark year in potential breakaway volume,” says Pirker. “But we need to see what the wirehouses are going to do about it, and we are going to see who actually moves because ultimately [these FAs] still need to pull the trigger.”

Although change is hard.

“I know people who just took a check and wish they could give it back,” says Scott Bell, who worked at Morgan Stanley for eight years. He left in July of 2008 and now manages about $50 million with an RIA called Gross Domestic Product Inc. that he runs with two other advisors in California. But there’s a difference between wanting to move and actually making the leap. “Some people are lazy, some people are trapped,” says Bell. “It’s scary to go independent. It’s like unplugging from the matrix.”

But it’s happening people, starting now. Headcount is going independent & so are the assets. Wirehouse executives may scoff at the 6% loss of headcount & say it’s normal — but they’ve also lost an even bigger 7.8% of market share since 2009. And when we’re talking trillions of dollars, every percentage point counts.

Kristen’s article is chock full of some great data points, charts & quotes from some really powerful industry people. (Oh, and there’s a couple more from me).

You really should see what’s happening on The Street. Don’t say I didn’t tell you.

Registered Rep — Indie Exodus: Overhyped?

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6 thoughts on “The Exodus: Starting Now

  1. the RIA transition is obvious. You can tell by how desperate Mary “$9M Bonus” Shapiro wants to get FINRA in on the act. Besides, a straightforward fee relationship works for a lot of advisors and doing that in the BD model where (I encountered) many look to see high commish products doesn’t make sense oftentimes

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