If I look back through my files and profiles from the mid-1990s, most of the brokers who have been at smaller firms, including boutiques and independent shops, don't have nearly the amount of assets or gross production as do wirehouse advisors.
In the past couple of years there's definitely been a trend of financial advisors and assets leaving the wirehouses. However, it seems like this trend is starting to dwindle a bit and actually reverse itself. This stands to be a promising year in terms of recruiting at the majors. And in a world where cash is king, the smaller shops, independents and even banks simply don't have the assets and cash reserves to offer superior service for wealthier clients in the way of research, platform and compliance.
Just last month a few of my contemporaries in the 2010 OWS Recruiter's Roundtable exclaimed that the "wirehouse is broken" and the future was in the independent world.
Not so fast. Reality says otherwise.
Degenhardt Consulting placed an advisor, who I will call Mike, about eight months ago from a regional to a wirehouse. Initially, we were a bit skeptical about his case since he had just left the wirehouse world approximately 15 months prior. Mike was in quite a predicament, as most of the promises made to him by the regional were not kept and he found himself losing business on a regular basis. Mike's gross production had decreased from $850, 000 to under $600,000. Upon Mike's start at the new wirehouse he told me, "You wait and see. People like me were given so many promises of a better culture and world at regionals. Looking back, I wish I had never left. I had been there for 24 years and thought the world was collapsing with the crisis. I was wrong and wish I could go back to what was."
Since Mike was so new out of the original firm, he couldn't go back and get any sort of deal. He owed money for the regional deal and since his numbers were down, had to be able to at least break even on the next move. Today Mike is very happy to, at least, be back in a wirehouse. Everything is superior to the regional he was at.
The clients who had left when he was at the regional are coming back and he's gaining in assets. I have heard from plenty of people who have left this particular regional, as well. Since dollars are more scarce in the regional world, management and branch managers have to make their dollars go further. This generally comes at the advisors' expense.
In Mike's case, the branch manager's compensation bonus was directly affected by whether he joined the firm. Most wirehouses have a better compensation method for their managers. But Mike's branch manager was willing to say just about anything to get him on board. Let's face it, that 5% override he got can go a long way during a recession. Once Mike came on board, the manager switched his efforts to the other potential recruits and his business was put on the back burner.
Advisors must pay attention to those who have left the wirehouses and gone the independent route. More important, they must ask: How are they doing today?
For example, one medium range advisor ($400,000) left a wirehouse about year ago in the northern part of New Jersey and went independent. The advisor, who I will call Brad, was lured away with the idea of a higher payout. In theory a higher payout makes sense, but the numbers and lack of support that go along with it say otherwise.
Brad's transition to the independent shop was not smooth. Most of his clients weren't comfortable with going to a smaller shop. In a world where Bernie Madoff is still on investors' minds, they tend to think twice before giving their hard earned 401(k) money and portfolios to that kind of independent shop. In addition, Brad definitely felt a lack of support and a major change, due to the fact he was now not only managing client accounts, but, also overseeing his own operation. Overall, it was a terrible move for him. Less than 50% of his accounts transferred and of those that did, increased compliance scrutiny and a lack of similar compliance support ended up in large legal fees that just weren't covered by the firm. With a crushed book, we were told that he recently gave up his dream of independence and joined a much lesser-tier firm.