Advisors may have started to defect from Wall Street before last year's tumultuous unraveling, but the financial and legal turmoil of 2008 appeared to turn a trickle into a flood. When evaluating this shift, however, it's apparent that most Wall Street refugees are taking measured steps toward independence by joining an independent broker-dealer, rather than launching a registered investment advisory practice on their own.

First, some perspective. Wirehouses continue to hold the vast majority of American investors' assets. Over the past 20 years, they have amassed approximately $6 trillion in assets under management by the end of 2007, compared to roughly $1.8 trillion for RIAs, according to Barnaby Grist, senior managing director, strategic business development for Charles Schwab Advisor Services.

But in 2008, assets changed direction: According to data from Grist, RIAs brought in $100 billion in net new assets to the four largest RIA custodians last year, compared with $6 billion that brokers brought to the four largest wirehouses. "The RIAs grew about 15 times faster despite being much smaller," Grist says. "That's a pretty tremendous change."

Although assets may be moving in RIAs' direction, wirehouse reps are not. For one thing, the number of advisors with the entrepreneurial gene required to go truly independent is probably limited. In addition, the same economic crisis that ravaged big wirehouses and pushed many advisors to seek independence in the first place also made the task of launching a new RIA even more daunting.

"Not everyone wants the challenge of starting up their own RIA," says Alois Pirker, senior analyst at Boston-based Aite Group, an independent research firm focused on business, technology and regulatory issues. "You see a lot of advisors changing from wirehouse to wirehouse, or from wirehouse to regional broker-dealer. That's probably going to be the lion's share of the moves."

Degrees of Separation

In a report he authored for the Aite Group last October, Pirker found that 18 of the 69 U.S.-based employee brokers he surveyed (about 26%) were considering going independent. But keep in mind that the Aite Group's survey asked advisors whether they were thinking about going independent, not whether they were doing so. Pirker doesn't know how many actually pulled the trigger.

According to Brian Shea, president and chief operating officer of Pershing, plenty of advisors are making the move. In fact, he's "seeing more advisors and brokers in motion than ever before," he says."Advisors want to take control of their destiny. They want to have a sense of the risks in the firm. They want a more stable, secure platform."

John Rooney, managing principal of Commonwealth Financial Network, says that when he talks to wirehouse brokers he wants to make sure they are leaving on their own volition and have the entrepreneurial streak that's going to allow them to succeed in the independent channel. Commonwealth also wants advisors to have a sales assistant to process paperwork, so they can focus on their business, Rooney says.

Ultimately, it is mostly going to be the high producers from the wirehouse channel that succeed on the independent level. "Our philosophy is if they haven't achieved a greater level of success with the infrastructure handed to them, and typically a branch manager encouraging them on a daily basis, how are they going to function here, where they have to be self-starters and deal with the infrastructure?" Rooney explains.

Pirker notes that there are various degrees of independence. For many advisors, the independent broker-dealer model is attractive because the business framework is already in place. Aite data also shows that brokers who jump to the independent B-D channel typically take more assets with them than those who go to an RIA. "If you look at how many advisors become RIAs, it's a small fraction of the overall movement," Pirker says. "And it should be."

Going it Alone

Of course, some advisors really do go the RIA route. For those thinking about making the move, Dick Burridge, CEO and chief investment officer for the Chicago-based RMB Capital Management, could serve as a case study. In April 2005, after 10 years with UBS (by way of a succession of buyouts) Burridge and partner Fred Paulman decided to go independent. They brought with them all 13 members of their team and $400 million in assets under management. More than 95% of their clients came along.

"It came as a shock to UBS," says Burridge, whose firm now has $1.2 billion in AUM. In many ways, the transition came as a shock to Burridge and Paulman as well. Every little detail, down to finding a name for the new firm, proved to be an enormous challenge. (They finally decided on Burridge's initials.) Fidelity Institutional Wealth Services, the company's RIA custodial unit, helped the group move.