"The trendline is real," says Bing Waldert, a director at Cerulli Associates, a Boston-based financial services industry research firm.

"It's easier than ever for advisors to go independent. But I think the industry as a whole underestimates the cultural leap from being an employee advisor to being an independent advisor. When advisors peel back the onion and start understanding everything that goes into it is where they become reluctant."

In a recent report, Cerulli examined the financial, logistical and psychological realities faced by wirehouse brokers pondering whether to leave the mother ship for life at an  independent broker-dealer or registered investment advisor firm. For wirehouse advisors accustomed to payout ratios in the 20% to 50% range, the prospect of earning 70% to 100% payouts as an independent is hard to ignore. But Cerulli points out that costs associated with setting up and maintaining an office can cut the net payout to 60% to 70%. And with that comes all of the risk and responsibility of owning your own business.

"I think it's a limited subset of advisors who can operate in the independent model," Waldert says. "Are they comfortable being a business owner?" He says the number of wirehouse brokers leaving that channel is only in the single-digit range.

Waldert adds there was unprecedented advisor movement within the wirehouse channel in late 2008 and early 2009. As a result, there are a lot of wirehouse advisors in the early stages of multiyear retention packages. "One of the things we're watching is the effect retention packages have on wirehouse brokers moving into the independent channel."

Others view if differently. "We're seeing a lot more wirehouse people coming our way, and bigger producers in the $1 million-plus category are doing the math and really looking into it," says Bob Whalen, president of Brewer Financial Services, a Chicago-based independent broker-dealer. "Our pipeline is the biggest it's ever been, and it's up significantly in terms of average GDC (gross dealer concession).

Whalen agrees that the cost of running an office cuts the average payout rate among independent advisors to roughly 70% to 75%. But, he says, "One of the things people often leave out when considering jumping to the independent side is the equity they can build up within their practice."  

Some observers believe that market conditions are primed to fuel an uptick in wirehouse advisors going independent. "At this time last year, the market turbulence was fueling the fire for people wanting to make the change," says John Furey, president of Advisor Growth Strategies LLC in Phoenix and former head of Charles Schwab's breakaway broker program. "But then the markets got so bad that it stopped everybody in their tracks and led to a wave of inertia. What's happening now is that with the markets stabilizing, that advisors are coming out of their shell and making decisions on where to take their books."

The breakaway broker trend won't be a short-term fling, says Furey, who advises brokers contemplating going the independent route. "It might take five to ten years to play out."

Barney Frank Won't Push SRO For Advisors
Congressman Barney Frank, D-Mass., won't push for a self-regulatory organization (SRO) to oversee registered investment advisors (RIAs) unless they want one, according to a published report.

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