Advisor Brant Keller is expecting to grow his firm's $185 million in assets to $500 million in the next five years. To do it, he just shed his long-time broker-dealer and signed on with Fidelity Institutional Wealth Services.
"By going with a 100% fee-only platform, there will never be any question about compensation or conflict with our clients," says Keller, president of Financial Advisory Consultants in Naples, Fla. Coincidentally, Keller joined Fidelity on the very day we talked to him in late December. The long-time advisor, who manages $185 million with three other CFP-certified advisors, says the move will save the firm as much as $375,000 in broker-dealer charges in 2008. That money can be used, he says, to add resources that will benefit clients and drive the firm's growth goals. "This move to Fidelity was strategic for us," says Keller, who previously had been a registered investment advisor and managed 98% of client assets on a fee-only basis.
According to a new Fidelity survey, breakaway advisors and brokers are growing their advisory shops at breakneck speed. Despite being in business a shorter amount of time than the average advisor (11 years vs. 14), breakaways have more assets under management ($243 million vs. $231 million), higher total revenues ($1.23 million vs. $1.1 million) and a significantly higher growth rate over the past three years (42% vs. 36%).
Breakaway folks also are attracting richer clients than the average advisor, the Fidelity survey found. Eleven percent of their clients have $5 million or more in assets, while only 4% of the rest of the advisory field's clients are in that high-net-worth range. This growth, Fidelity says, may be attributable to the fact that the majority of breakaway firms are focused on actively adding new clients, while existing firms have more established client bases.
"The increase in the new RIA practices over the past few years has been unprecedented, and we expect that trend to continue, especially given the success shown by breakaways," says Scott Dell'Orfano, executive vice president of Fidelity Institutional Wealth Services. "Our focus is not only to help brokers get started, but also to provide them access to the ongoing technology products and service they need to thrive and grow their business profitably over the long term."
The impact breakaway brokers are having isn't lost on executives at Fidelity, whose institutional platform reached a record $325 billion in assets-with advisors adding a scorching $65 billion in net new assets through third quarter. That's a 55% increase over last year. About 70% of the 50 advisors who migrated to Fidelity's platform in 2007 came from wirehouses and the rest from independent broker-dealers, Dell'Orfano adds.
Keller says he was highly impressed with the turnaround time Fidelity's institutional platform is shaving off client transactions-sometimes as much as 48 hours. To continue to attract breakaway brokers and independent advisors alike, Fidelity has added a suite of transition tools designed to be attractive to breakaway brokers. Among them: Access to fully furnished offices or meeting rooms through a national vendor, an affordable medical, dental and vision benefits plan, and discounted rates with a growing cadre of compliance providers including Stark & Stark and MarketCounsel. "A transition to an RIA has many rewards, but it can also be potentially disruptive. We hope these turnkey services and negotiated deals make it easier," Dell'Orfano says.
Technology at the giant also continues to pack a punch. Fidelity's WealthCentral platform will soon offer advisors one unified workstation for portfolio management, customer relationship management and financial planning, an innovation that has yet to be duplicated in the industry.
Going forward, it will be critical for BDs and custodians to be able to deliver value to advisors, especially as a larger and larger portion of some advisors' books of business transition to fees. "The demographics are so compelling in the independent space and there is so much money in motion as boomers transition into retirement, we tell our broker-dealer partners all the time that they truly have to be creating value," Dell'Orfano adds.
Schwab Institutional is also seeing tremendous growth as a result of breakaway brokers-doubling the number of new advisors who decided to work with the custodian in 2007. About two-thirds of Schwab Institutional's advisor growth is coming from wirehouse brokers, says John Furey, director of strategic business development for the custodian. In 2006, more than 100 new advisors joined the ranks of the 5,500 advisors who custody money with Schwab.
"We think it's just the tip of the iceberg," says Furey. To encourage breakaway brokers, Schwab is offering a number of benefits to entice and encourage the transition to full independence. They include office location and health benefit services. Schwab is also offering wirehouse brokers beneficial financing starting at $100,000. "The loans are being issued by our Schwab and financed by our bank. They're not a loan an advisor can get from a bank," Furey says.
The number one focus right now "is to develop an integrated turnkey transition suite so when advisors come to us, they can hit the ground running," Furey adds. "A lot of advisors love the sizzle of going independent, but to spring them from the box for a broker-dealer can be more daunting."
Schwab has a dedicated team of 10 professionals who work full time on advisor transitions. They've also built an integrated commission platform with Cambridge Investment Research, so advisors can combine their commission-based and fee business on one platform. "The trend for advisors new to our platform is to have a book of business that is about 50% fees and 50% commissions," Furey says. "There's the potential for a huge migration of brokers to our business. You can see it in the marketplace as others position themselves to compete for breakaway brokers. We're pulling all the pieces together to be a kind of IPhone for advisors who want to transition."
Bruce Fleet, a 20-year veteran of Wall Street, is a walking, talking example of the kind of advisor who is making the leap to independence. Fleet's new book, Demystifying Wall St.: Shedding A Little Light On The Bull!, is a detailed account of his experiences as a broker and high-level national trainer for several leading broker-dealers: The book also serves as an educational and cautionary tale for investors who work with wirehouse brokers.
"I saw brokers offered bonuses, trips, rewards and incentives, all for making the firm money," says Fleet, who launched his fee-only advisory firm, Fleet Capital Management in Frisco, Calif., in 2005. "Never once in my 20 years of working with Wall Street, was I ever offered anything for making clients money."
Fleet, who custodies client assets with Schwab Institutional, says while transitioning to independence is difficult, staying in a system he no longer believed in would have been impossible. "I became disenchanted by the product pushes, the misguided compliance, the carte blanche for big producers, "Fleet says. "As many of us enter our forties and fifties, we're just not willing to put up with it anymore. We're more sophisticated and we realize that life is about more. We want to serve our clients' needs now.
The breakaway broker trend hasn't even reached the tipping point, Fleet predicts. No wonder broker-dealers and custodians alike are sitting up and taking notice of breakaway brokers' potential and the need to actively recruit across the advisor spectrum. A new report from Pershing, produced by Moss Adams, finds that 9,000 advisors will join the industry in the next four years.
To encourage the new rep transitions, broker-dealers and custodians alike continue to ramp up their turnkey transition services and full range of outsourcing solutions.
Raymond James Financial Services (RJFS) added nearly 200 advisors in 2006 and expects to add another 500 in 2008. "We currently have 100 advisors in the pipeline among all the divisions at Raymond James," says Bill Van Law, RJFS's senior vice president and national director of business development. "We're really starting to see the fruits of our labor from building our nine-person business development team." The team, who are Van Law's recruiters, are for the first time strategically placed around the country.
RJFS currently has 3,255 producing advisors, and total assets of $127 billion. In addition to adding 500 advisors in the new year, the firm also plans on increasing assets and revenues by 15% or more.
LPL Financial Services saw about 33% of its new advisors come from wirehouses in 2007, with the major influx of advisors (a whopping 2,500), coming from the firm's acquisition of Pacific Life's broker-dealers. "We plan to keep growing at 10% to 15% a year," says Bill Morrissey, LPL's executive vice president of branch development.
To do that, the firm has divided its recruiting team into two distinct groups. The core team focuses on advisors between $250,000 and $750,000 in production. The new team concentrates on practices that generate more than $1 million in annual revenues. "The other big trend we saw this year was we are recruiting larger and more complex practices. I think what is helping is that we're offering each firm a relationship manager, so growth and transitions are much easier," Morrissey says.
ING is focusing on "growing with quality," says spokesman Phil Margolis. "Our recruiting efforts were on par with 2006, which we considered a very good year." In the third quarter of 2007, the company was working with almost 8,900 advisors and had added nearly 1,500 new people through September. Firm revenues grew some 38%, to about $771 million while in assets under management reached $16.3 billion. "We're growing our recruiting efforts in 2008, so we expect corresponding growth in our recruiting numbers," Margolis says.