This year was a “slower year than many expected,” in terms of financial advisors departing major firms for other pastures, according to Chip Roame, the managing partner at Tiburon Strategic Advisors. “I believe 2013 may be slower, too,” he says.

Roame cites three reasons for the slowdown in what has been a major trend:

  • Wirehouses have been restructuring compensation plans to retain their advisors;
  • Wirehouses may start “half-way houses” in 2013-2014, in effect offering more independence to advisors; and
  • Consumers' ongoing financial strife. “This will make 2013 not a good time to risk one's business by moving,” Roame says.

Terminology is important in evaluating the speedup or slowdown. Roame points out that the “breakaway broker” term is sometimes used to address independent broker-dealer (IBD) reps moving to other IBDs or to the RIA-only model. “I think both of these trends will accelerate in 2013-2014,” he says. “More small to mid-size IBDs will call it quits, with reps trading up to the leading firms like LPL. In addition, more independent reps from the larger firms like LPL will go fee-only; at least some of them will move to the RIA custodian channel.”
Derek Bruton, managing director and national sales manager at LPL Financial, also cites three reasons for his 2013 outlook, but he is more upbeat. He envisions:

  • “Multiple opportunities” to recruit large and successful advisory practices from the wirehouse space.
  • Shifts in the insurance industry will continue to generate advisor transitions to the independent space.
  • Continued consolidation within the independent space will intensify the ongoing “flight to quality” among independent advisors who are more focused than ever on finding a safe and secure IBD partner, Bruton asserts.

Breaking Away from Wirehouses

As Bruton sees it, many wirehouse advisors in late 2008 and early 2009 made the decision to take upfront retention checks rather than go independent, because of perceived risks related to the economic downturn. “With the economy stabilized and retention periods about to expire,” he says, “we see a very large number of successful and sophisticated wirehouse advisors who will be looking to go independent.”

Demographics also matter. Bruton points out that many productive wirehouse advisors are at an age where, if they go independent in 2013, they can still have 10 working years to build equity in their own businesses.

As for insurance company advisors, Bruton says that recent moves by insurers to focus more on products and less on distribution are driving more advisors at insurance broker-dealers to explore other options, including going independent.

“Successful advisors are now seeking the greatest level of flexibility and choice combined with the greatest level of resources and tools,” Bruton says. “The future of growth among financial advisors is in business model flexibility and scalability of the advisor’s practice through growth in relationships versus reliance on organic asset growth.” As might be expected, Bruton concludes that no other firm provides these opportunities more effectively than LPL Financial.


At Dynasty Financial Partners, president and CEO Shirl Penney sees a continued stream of breakaway advisors from wirehouses to the independent channel in 2013. “The reasons,” says Penney, “include a belief in the fiduciary client coverage model (separating where advice is given from where products are manufactured), a desire to own and run their business, and more flexibility. Some advisors mention the expiration of retention bonus periods or frustration with post-merger integration, but generally we’re hearing about the positives of where they are going and less about the negatives of what they are leaving.”

Penney notes that Dynasty is getting calls from advisors at regional brokerages and from advisors at some IBDs. These advisors also are considering full independence and the RIA model.

“We expect that more than half of the advisors who go independent in 2013 will join existing RIAs,” Penney says. “There is still a large population of advisors who want most of benefits of independence but who don't want to run their own business. Thus, existing RIAs stand to benefit enormously from advisors joining them next year. Our focus on helping our advisors with ‘tuck-ins’ is a big part of our strategy for 2013.”

According to Penney, the independence wave does not seem to be losing any strength. “Custodians, RIA-focused law firms, consultants, recruiters, and platform service companies like Dynasty will all benefit,” he says. “We expect to set up between 15 and 20 new firms in our network in 2013, besides supporting the tuck-ins of our current 15 firms.”

Penney adds that while the breakaway advisor trend is a very real one, so too is the “breakaway client” trend. “The RIA space is also seeing organic growth from clients selecting the fiduciary advisory coverage model,” he says. This trend is just as important, according to Penney, yet so far it is largely under the radar.

Rudy Adolf, founder and CEO of Focus Financial Partners, reports that 2012 was a “terrific year” for the independent advisory industry, which further expanded its market share.

His firm believes that $150 billion to $200 billion of client assets transitioned towards independent RIAs in 2012, one of the largest moves ever. “Focus, the leading partnership of independent wealth management firms, increased client assets by $14 billion,” he says, “to close out the year with nearly $60 billion in assets.”

Here is how Adolf sees 2013 shaping up:

  • Asset and market share loss of the brokerage industry will continue at a similar pace.
  • Client retention for brokers going independent will further top intra-wirehouse moves (asset retention of 95% for the former, 65% for the latter). Brokers’ disadvantage will further increase with new disclosure rules of recruiting bonuses by wirehouses.
  • Wirehouses won’t be able to "fix" their business models.  Perennial expense and service re-engineering attempts along with feeble cross-selling and opaque high-margin products will continue to squeeze clients and advisors.
  • Brand damage based on corporate malfeasance will continue as legacy technology, product and compliance platforms continue to stymie wirehouses. Brokers are getting increasingly tired of apologizing to their clients.
  • The most sophisticated teams in the industry will pursue independence. As word spreads of successful transitions, more of these teams will seriously contemplate independence.
  • Brokers who are intrigued by the independent model but unwilling to set up their own firm will consider joining existing RIAs.
  • Wirehouse management will face increasing pressure from regulators, their boards and shareholders to justify economically irrational recruiting and retention bonuses.

The “net-net,” as Adolf puts it, is that it will be good to be independent in 2013, but tough to be a broker.

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