Another breakaway wirehouse team, another consulting firm smoothing the way.

Last week saw the launch of Encompass Wealth Advisors, a former Morgan Stanley team that managed $650 million. The group made the transition with the help of consulting firm tru Independence, which also used the occasion to announce its own entry into the market for servicing wirehouse advisors going independent.

But are there too many businesses catering to breakaways to justify new entrants?

"That's always the question," Jeff Spears, CEO of Sanctuary Wealth Services, a San Francisco-based firm that helps advisors launch their own independent firms. He describes his firm and others like it as accelerators.

'TREMENDOUS OPPORTUNITIES'

"I think if you said, 'I'm looking to start a new biz today,' then I would tell you that, and obviously I am biased, that I think there are more options in the accelerator space than in the rollups," Spears says.

Those in the space point to the numerous services that advisors need when transitioning.

"Wirehouse advisors are used to having a lot of things done for them," says Tony Sirianni, managing partner of Sirianni Strategy Group, a consulting firm for independent firms and advisors. "They're not necessarily prepared for signing leases and such. And they're more concerned with getting their clients to move over."

Sirianni's path is typical of wirehouse-to-independent moves. He was a complex manager at Smith Barney and Morgan Stanley before becoming CEO of RIA firm Washington Wealth Management in 2010. Later he helped found Steward Partners.

"Everyone in the independent space is benefiting from these wirehouse guys moving over and saying, 'I need this or I need that,'" says Sirianni.

Independent firm Steward Partners Holdings, for example, has profited from advisors going independent in two ways; the firm's wealth management side, Steward Partners Global Advisory, has been recruiting top talent, recently pulling in a former Morgan Stanley team that managed over $315 million in client assets. The firm also has a consulting service that works with others trying to go independent on their own.

“I think there are tremendous opportunities, and I think there will continue to be flow to the independent space,” says Joe Rizzo, president of Steward Partners Consulting Solutions and a former Morgan Stanley executive director.

GROWTH TRENDS

Growth trends in wealth management have mirrored the advisor movement to independence. Asset market share for wirehouses dropped from 48% in 2007 to an estimated 41% in 2013, according to data from Cerulli Associates. RIA firms, meanwhile, saw their share rise from 9% to 13%.

Regional broker-dealers grew their slice of the overall asset pie to 15% from 14% over the same time period, while independent broker-dealers had exactly the same percentage of asset market share, 14%, in 2013 that they had in 2007.

In 2007, Wirehouse firms also controlled about 53% of all assets belonging to high-net-worth clients (defined by Cerulli as investors with $5 million or more in investable assets). This fell to an estimated 41% in 2013.

Cerulli data suggests that most wirehouse advisors are satisfied at their firms and will stay there – but the elite advisors managing $1 billion or more, are eyeing independence. Almost 40% express a desire to break away, according to Cerulli data.

That's a tantalizing prize to firms wanting to assist breakaways going independent.

"Everybody cruises around the wirehouse practice because that's where the biggest books are," says Aite Group analyst Alois Pirker. "They've got a bulls-eye on their back."

Pirker says that breakaway advisors need help with compliance, transition and technology needs, but he's skeptical and wonders if the marketplace may be getting crowded.

POTENTIAL WINDFALL

Those servicing the independent space, however, remain optimistic.

Jay Penn, one of the founders of tru Independence, says the playing field has leveled: "From a tech standpoint, it's never been easier for someone today to start their own investment advisory firm and have access to the same tech that people had at the wirehouses."

Steward Partners’ Rizzo expects the independent space to swell as aging advisors consider where and how they want to retire, and as retention deals signed around the time of the financial crisis start to expire, freeing many advisors of so-called 'golden handcuffs.'

"You're going to see a lot of advisors being unlocked. We can see it in our pipeline. It's going to force them to think about what their options are for their business," Rizzo says. "Those two movements speak to great opportunities for an organization like Steward Partners."

Indeed, Cerulli data suggests that somewhere between 12% and 20% of all long-term retention contracts will expire in the next five years. The peak year, 2018, will see 20% of contracts expiring.

Firms like tru Independence and Steward Partners are positioning themselves to catch that potential windfall.

"We're going to help other people create what we have at Steward Partners," says CEO Scott Abry. "We make it very easy for them to do what we did because we spent over a year putting it together."

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