Boomerang Brokers Return To Big Firms

(Dow Jones) The allure of independence is fading for some financial advisors who strayed from big brokerage firms to strike out on their own.

Jim Stoker began his career as a financial advisor in 1985 at Shearson Lehman/American Express. He stuck it out through merger deals and name changes, leaving what had become Citi Smith Barney for the independent world in 2004. But a few years as an independent, coinciding with a dreadful period in market history, had Stoker running back to his old stomping grounds this spring.

"We had to write our own research, build our own risk tools, establish a due diligence program," said Stoker, based in Austin, Texas. "It drastically cut the time we could spend with clients."

Regulatory pressure on independent firms in the post-Madoff era was another factor that convinced Stoker to move his team to Morgan Stanley Smith Barney, which had been Citi Smith Barney when he left.

"I thought being smaller and more of a boutique would allow us to be more agile and use smaller, esoteric investment managers," Stoker said. "And since we weren't affiliated with a broker-dealer, it would ensure we had no conflicts of interest."

Like many independent brokers, Stoker and his team enjoyed the speedier implementation of strategies and investment flexibility. But client requirements were radically altered in the dark days of 2008. "They are now more concerned with depth of research and risk management," he said.

Stoker, who works primarily with institutional investors, say potential clients have been more receptive since his move. "You get bigger clients when you're at a bigger firm," he said. "Boutiques will not be able to compete in this market."

Even some longtime independent advisors are starting to feel the same way.

Robert Matluck, a financial advisor at UBS's U.S. Private Wealth Management, joined the firm from an independent registered investment advisory. He works with high-net-worth and small institutional clients, and has been an advisor for about 27 years.

"My clients expressed comfort in me going to a big place," said Matluck, who joined UBS in January 2009.

He notices a difference, particularly in prospecting clients. The discussions with new clients are shorter now because they are more comfortable with the well-known name of UBS. Independent shops can't compete with the technology and products of big brokerage firms, he said.

Most of the big brokerages also have retail banking operations now, irking some advisors. But John Calandro, a Merrill Lynch advisor in Dallas, says he now appreciates having banking components to offer clients. Calandro was independent for 33 years before moving to Merrill Lynch in May 2009. "No matter how you look at it, banking deepens relationships with clients," he said.

Calandro's staff was shocked when he announced his move. He too was hesitant to join Merrill Lynch, especially because it had just been acquired by Bank of America Corp. But many independent firms appeared shaky as he looked to make a move, with problems such as having issues with capital. "Even the ones that were surviving looked risky," he said.