Firms Recruit NHW Brokers in Search of Platform

Forefront Advisory, an independent asset management firm, is using the financial crisis as an opportunity to scoop up laid-off and unhappy Wall Street talent, giving them a chance to strike out on their own.

Dan Faucetta and Dan Weiskopf, former UBS AG discretionary fund managers who are starting up Forefront's exchange-traded fund investment advisory business, brought a significant number of their UBS clients with them, including ultra-high-net-worth families and family offices, family foundations, endowments and charitable trusts.

Their mission: to provide ETF investment advice to retail and institutional investors and help independent traders using the Forefront platform move into the ETF business.

Forefront was started last April when Luis A. Marino, its founding partner and president and a former financial adviser at Merrill Lynch, and founder and CEO Bradley Reifler spotted a gap in the marketplace. They realized that ultra-high-net-worth traders and advisers who had more than $10 million of their own capital (or that of family and friends) but were out of work wanted to continue trading but that they needed a platform to do so.

Instead of trading out of a spare bedroom, these people can avail themselves of Forefront's willingness to supply them space and a community in its midtown Manhattan offices. These breakaway brokers — starting their own registered investment advisory firms instead of working for a big bank or broker/dealer — have become a hot commodity on Wall Street. Registered investment advisors need a place to trade, and firms are competing for their business.

Forefront has a name for these traders: "instividuals," that is, individuals who act and feel like institutional customers. "We are sitting on a historic amount of talent and knowledge that could use a home," Marino said.

Instividuals' goal may be to start their own investment firms, and Forefront supplies management oversight, since it is a Securities and Exchange Commission-registered investment advisor as well as a broker/dealer.

"What we provide traders is not only all of the infrastructure, compliance and regulatory support to relaunch themselves independently but [also] the ability to grow their strategy," Marino said.

Forefront is not alone. HighTower Securities LLC, an advisor-owned financial services firm in Chicago that serves high-net-worth clients, was started last May with a cushion of cash from Wall Street titans Philip Purcell and David Pottruck, and it has recruited a slew of brokers whose firms were crushed in the financial meltdown.

Fidelity Investments is also targeting breakaway brokers and gaining on Charles Schwab Corp.

The trend toward recruiting brokers has been building for a few years, but only recently has the "perfect storm arrived," said Chip Roame of Tiburon Advisors. "The wirehouses really have limited competitive advantages now" that the recession has battered the big names, he said. "And the wirehouse brands are tarnished, so that's not necessarily a good name to have on your business card. It used to be a sales pitch to work at UBS or [Merrill Lynch] to leverage their brand."

Now that brokers can get access to the same products and technology through smaller firms, they no longer need the support of a big company, Roame said. And the so-called golden handcuffs — stock options wirehouses gave advisers — are worth significantly less as the financial industry continues to struggle.

Another factor: Older brokers dream of being independent and able to sell their book of clients. "This is much easier to do in many of the more independent places," Roame said. "So the winners may be the latest crop of these breakaway broker homes."

As Marino put it: "Everyone desires to be an entrepreneur."

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