And so the trend continues: Another institutional broker-dealer bets big on the trickle of breakaway advisors toward independence to accelerate to a steady flow.

M.S. Howells & Co., a Scottsdale, Ariz.-based institutional broker-dealer that has been providing institutional services to hedge funds and separately managed accounts since 2001, announced this week that it will expand into the RIA universe.

Registered investment advisors who affiliate with M.S. Howells will be independents, paid as independent contractors. They will have access to the company’s proprietary investment strategy and products, mshPRIME platform, no-cost trade allocations and multi-custodian reporting, both through Jefferies and Co. and Goldman Sachs Execution and Clearing (via Grace Financial Group).

To head up the new RIA division, the firm hired financial services industry veteran Bob Stuber to serve as director of RIA sales. Stuber began his career as a financial advisor at Dean Whitter, after graudating from Penn State University. He later switched over to the retail side of the business, serving in various roles at Wayne Hummer Investments, Wells Fargo and, most recently, Countrywide Investment Services. Stuber’s experience is primarily on the institutional brokerage side of the business; he has never worked with independent RIAs.

“What we’re seeing is the breakaway advisor movement has really been growing and we think it’s going to become even stronger over the next few years,” Stuber said. “As advisors are leaving their wirehouses and we feel there’s a real need to go independent, some of the larger [broker-dealer] firms may not give [the breakaways] the attention they deserve. We will give them more attention and exceptional service. Our washboard is really our anticipation of their needs, helping them to advance their business.”

M.S. Howells does have some experience working with RIAs, as many of the hedge funds the firm has helped to launch and grow over the past nine years have also been RIAs, according to Stuber. “We’ve helped them start hedge funds and grow every step of the way,” he said. “If we can do that, we can help investment managers grow their business with our platforms.”

This dip into the RIA universe is a trend that isn’t going anywhere. Sparked by the ruthless scrutiny of the large institutional brokerage firms during the market downturn in 2007 and 2008, independent broker-dealers and custodians have enjoyed triple-digit increases in their recruitment numbers from the wirehouses over the past couple of years.

Now, with many longtime institutional firms hoping to get in on the fad, broker-dealers large and small are opening up RIA and independent divisions. Just last week, BNY Mellon hired Peter L. Berg, to serve as a vice president and sales director to promote custody services to RIAs nationally. Berg said he plans to “increase revenues by double digits” by cross-selling to existing customers and targeting breakaway brokers.

But it’s a large bet to wager: That the window of opportunity to recruit from the wirehouses will stay open indefinitely; that brokerage advisors who are used to simply turning on the lights in the morning will want to take on the entrepreneurial responsibilities of going independent; that the independent channel will one day account for more of the nation’s advisors than the brokerage side of the industry.

But over the past year, another risk has reared its head: Net capital. With the independent broker-dealer and custodian world dominated by big names such as Charles Schwab, TD Ameritrade, Pershing, LPL Financial and Raymond James, all eyes are on the smaller firms. Will they be acquired? Are their platforms and technology competitive enough? Can they survive another drop in the market?

In March, FINRA shut down Tampa-based GunnAllen Financial, after the firm failed to secure a capital infusion that it needed to stay in business. Then, in April, AFA Financial, based in Calabassas, Calif., shut its doors, after it reportedly failed to have sufficient capital to cover errors and omission insurance costs. And just this week, a third independent broker-dealer, Cincinnati-based Great American Advisors, announced plans to close its doors.

In today’s environment, it is clear that delving into the RIA universe will require a delicate balance—one that requires walking a tight rope between taking advantage of a potential growth opportunity and maintaining stability in a volatile market environment.

Stuber is confident that M.S. Howell has what it takes. “We have the exceptional customer service and the strength of our clearing firm behind us,” he said. “The no-cost allocation of trade is vital for someone who is trying to build a book of business and doesn’t have much profit yet. We have the knowledge to succeed.”


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