Fidelity: Hybrid Advisors Switch B-Ds and Drive Breakaway Trend

Fidelity Investments has helped a record 185 brokers leave wirehouses and join registered investment advisory firms and independent broker-dealers so far in 2009, the company said Monday.

Several trends, including brokers’ joining roll-up firms, should push that number higher in 2010, according to Scott Dell’Orfano, executive vice president of Fidelity Institutional Wealth Services, the company’s registered investment advisor (RIA) custody unit.

Year-to-date, the number of breakaway brokers beats the 105 advisors that Fidelity attracted in 2008. “We have more momentum than ever,” Dell’Orfano said. “Not only did we have a record number of brokers transitioning, [but also] we have a record number of brokers we are speaking with as part of the due diligence process.”

Roughly 75% of the breakaway brokers who turn to Fidelity are RIAs with a broker-dealer affiliate. These firms do commission- or transaction-based business and want to change their broker-dealer affiliations, Dell’Orfano said.

Advisors are trying several formats on for size, from joining existing RIAs to striking up agreements with consolidators such as Chicago-based HighTower and Roseville, Minn.-based Focus Financial Network, Dell’Orfano said. Those companies have already done the due diligence on many aspects of going independent. With their help, advisors don’t have to do many critical tasks on their own, such as reviewing custodians and technology or setting up investments. A consolidator might put up funds to help the new firm get on its feet, either as an equity investment or as startup capital.

In another growing trend, branch managers are thinking about setting up RIA offices where they have their old teams under them as producers. That model is a little different from the situations Fidelity has seen so far. High branch manager turnover, mainly among wirehouses, will also drive the breakaway numbers up in 2010, Dell’Orfano said.