With Wall Street investment banks floundering, brokers and traders have been laid off in droves. And Forefront Advisory, a new independent asset management firm, sees it as an opportunity to scoop up laid-off and unhappy Wall Street talent and give them the chance to strike out on their own.
 
Meet Dan Faucetta and Dan Weiskopf, a pair of discretionary managers, formerly of UBS, who are now working for Forefront to launch its new exchange-traded fund investment advisory business, taking a significant number of their UBS clients with them. “The two Dan’s,” as they are known, are going to do two things at Forefront: Provide ETF investment advice to retail and institutional investors and help independent traders using the Forefront platform move into the ETF space. They have brought with them their book of UBS clients, including ultra-high-net-worth families and family offices, family foundations, endowments, and charitable trusts.

Forefront started when its co-founders—Luis A. Marino and Bradley Reifler, spotted a gap in the market. Marino, the firm’s president and former financial advisor with Merrill Lynch, and Reifler, the firm’s chief executive officer and former founder, chairman and CEO of privately held Pali Capital, realized a significant development. Ultra-high-net-worth traders and advisors who had over $10 million of their own capital (or that of their family and friends) and were out of work, wanted to continue to trade. But, they needed a platform to do so. Instead of trading out of their spare bedroom, Forefront provided these traders and advisors the space and the community in their midtown Manhattan offices. These breakaway brokers—those starting their own registered investment advisory firms instead of working for a larger bank or broker/dealer—have become a hot commodity on Wall Street. Registered investment advisors need a place to trade, and firms are competing for their business.

Forefront has a name for these traders: instividuals. An instividual is an individual who acts and feels like an institutional customer.
 
“We are sitting on a historic amount of talent and knowledge that could use a home,” Marino said.

The instividual’s goal may be to start their own investment firm and what Forefront provides is management oversight since the firm is a Securities and Exchange Commission-registered investment advisor as well as a broker-dealer. “What we provide traders is not only all of the infrastructure compliance and regulatory support to re-launch themselves independently, but give them the ability to grow their strategy.”
 
Forefront is not alone. HighTower Securities LLC, a Chicago-based, advisor-owned financial services firm serving high-net-worth clients, started in May of 2009 with a cushion of cash from Wall Street titans Philip Purcell and David Pottruck. HighTower has already attracted a slew of breakaway brokers whose firms have been crushed by the financial meltdown.

Fidelity Investments is also targeting breakaway brokers with its institutional wealth management arm, which is pursuing investment advisors and wealth managers who want to run their own shops. Fidelity is starting to gain on Charles Schwab Corp. in this market.

“Everyone desires to be an entrepreneur,” Forefront’s Marino said.

The trend of recruiting breakaway brokers has been occurring for a few years, but only recently has the perfect storm arrived, Chip Roame of Tiburon Advisors said. “The wirehouses really have limited competitive advantages now,” Roame said. The recession has battered the big names.  “The wirehouse brands are tarnished so that's not necessarily a good name to have on your business card,”
Roame added. “It used to be a sales pitch to work at UBS or ML to leverage their brand.”

Not anymore.

Now brokers can access the same products and technology working from smaller firms so they no longer need the backing of the big companies, Roame said. In addition, the golden handcuffs, which are the stock options wirehouses gave to advisors that would vest in the future and keep advisors from leaving their jobs, are worth significantly less due to the financial industry's struggles. Another factor: as brokers have aged the dream of being independent and selling their book of clients as a business seems more enticing. And that, Roame said “is much easier to do in many of the more independent places.”