The recent spate of bad news for four major banks could eventually yield a new crop of breakaway brokers, according to an attorney who specializes in helping wirehouse advisors go the independent route.

“I think this is very reminiscent of 2008 and 2009, when there were regulatory issues and issues with regard to large firms taking TARP money,” said Patrick Burns Jr., a Beverly Hills, Calif.-based attorney who specializes in the ushering advisors through the transition. “There may be a slight difference today, but overall the headwinds are pointing in that direction.”

Burns was referring to Moody’s recent credit ratings changes for Bank of America, Wells Fargo and Citigroup. Moody’s lowered the ratings on all three based on their opinion that the U.S. government would be unlikely to support them in a future financial crisis, barring a threat to the financial system as a whole. 

The fourth big bank with a recent black eye is UBS: Unauthorized trading in its investment bank will cost that institution $2.3 billion.

The developments would more likely be on the radar of high-net-worth clients, according to Burns. “Those clients with CPAs, attorneys and multiple financial advisors, they are the ones who are going to be tuned in ask tougher questions,” he said.

Having to continually field questions about embarrassing headlines was seen as a contributing factor to wave of breakaways that followed the financial crisis starting in 2008, Burns notes. The crisis set off a flood of breakaways and a game of musical chairs among the wirehouses; part of the result was that wirehouses signed many of their brokers to retention agreements.

Many of those agreements were for terms of just two or three years, Burns said, meaning that many will expire this year and next.

Should the recent bad news prompt wirehouse brokers to head elsewhere, one big question is the extent to which their employers would try to keep them from bringing their clients along.

“In some ways it might be somewhat more difficult, just because not quite as many are breaking away,” Burns said. “In terms of the volume of people fleeing in 2008 and 2009, it was hard for firms to react.”

Burns said his prediction is based on history and from studying events like the Moody’s downgrades and from direct discussions between wirehouse brokers and his firm.

“I talk to brokers all day long,” he said. “I get a lot of firsthand accounts.”







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