When they finally pulled the trigger on leaving their wirehouse to go independent, Dan DeMoss and his partners implemented their plan with almost military precision.

A new office was discreetly secured. Tens of thousands of dollars worth of office equipment and furnishings were stored in their garages, ready to be moved at a moment's notice. A broker-dealer, Raymond James Financial, had been vetted and chosen months in advance. Plans were drawn up for contacting old clients-but carefully, so as not to violate any noncompete and nonsolicit agreements.

Oh, and DeMoss made absolutely sure his team resigned on a Friday-the later the better-because then they would have the weekend to transition into the new office. It would also minimize the time his old wirehouse, Merrill Lynch, would have to reach out to his clients before the start of the new workweek.

Indeed, DeMoss outdid himself on this phase of the operation. He and his partners left on Friday, October 31, 2008, in the middle of an office Halloween party.

"Historically, the candy begins to get passed around at about noon," says DeMoss, who, along with his partners, created The Turner Group in Tulsa, Okla. "By the time we left, there weren't a lot of people there to start cannibalizing our business."

The Friday rule, it turns out, is followed by virtually every breakaway broker who has done his or her homework, meaning Wall Street's giants may by now be feeling a bit skittish when the end of the workweek arrives.

Not that brokers transitioning to independence is a new trend. The exodus, in fact, has been building for years as the fee-only model has become more attractive and new technologies allow advisors to transition seamlessly to RIA status.
But as a result of the historic financial and economic meltdown of 2008, deciding whether to go independent has taken on a new urgency among many advisors.

Industry observers note not only an uptick in departures, but also a notable increase in the size of some of the advisor teams that are leaving the confines of the big wirehouses.

Advisors interviewed for this article cited various reasons for leaving, but most mentioned a desire to be entrepreneurs, plus being disillusioned with their wirehouses' perceived emphasis on sales of proprietary products over clients' interests. For some of these advisors, the financial crisis, and the role that Wall Street investment banks played in the collapse, represented a tipping point.

In response, wirehouses named by the brokers maintained their clients indeed come first.

"Our customized approach to wealth management is built on personal relationships with our clients and shaped by an understanding of those clients' needs and aspirations," UBS spokeswoman Karina Byrne says.

Merrill Lynch prides itself on its client-focused service, responded Lyle LaMothe, head of U.S. Wealth Management, Merrill Lynch Global Wealth Management.

"Our open architecture and fee structures ensure that clients have choice in how they do business with us," he says. "Our client satisfaction ratings are above 90%, with nine out of ten clients saying they would recommend their advisor to others."

Custodians and independent broker-dealers have reported a surge in the number of stockbrokers converting to RIAs. Schwab Institutional, for example, reported bringing 74 breakaway brokers into its fold in the first half of 2009, a 54% increase from a year earlier.

Based on interviews with several advisor teams who made the switch, last year's financial trauma and the lingering aftereffects have pushed many wirehouse reps to go independent after considering the change for years. In the end, they say, the biggest thing that had held them back from leaving-the security of working under a national brand name with deep pockets and the public's trust-vanished almost overnight. Once that happened, the decision became easy.

For Ben Marks, a breakaway broker who left UBS a year ago to affiliate with LPL Financial and form Marks Group Wealth Management in Minnetonka, Minn., the trend is part of a natural transition. Clients, he says, now have a low tolerance for investment advisors who work for companies that also sell investment products. They want the people who give them advice to be independent thinkers.

"This is part of a wave that has yet to crest," Marks says. "There's a lot more ahead."

A Broken Trust
After watching Merrill Lynch's culture change over the last year following its sale to Bank of America, Janet Wilson broke with the firm in March. "I didn't feel I was working for the same company I had worked with five years before," says Wilson, who established Janet Wilson Wealth Management in Mobile, Ala., and joined Commonwealth Financial Network.

During the 12 years she worked at Merrill, Wilson gradually transitioned to a fee-based model. But the more she moved toward fees for her clients, the more she ended up butting heads with a product-centric culture, she says.

Most of her clients have between $500,000 and $4 million in assets. Many are retirees who worked for manufacturing plants in her region for four or more decades, and their households typically rely on money from a 401(k) rollover, a pension and Social Security.

"They want to generate secure income for the rest of their lives while making sure they don't outlive their money," she says.

Serving this kind of clientele wasn't always easy at Merrill Lynch, Wilson says. One problem was the company's policy of not paying advisors for a client account of less than $100,000-which Wilson would sometimes get if her regular clients referred a friend or relative.

The push to sell proprietary products also conflicted with her vision for her business, as did the push to sell banking products, such as Visa cards and mortgages, after Bank of America bought Merrill, she says.

After many of Merrill Lynch's top people had been forced out following the acquisition, Wilson realized that she no longer worked for the same company she joined a dozen years earlier. "We were not doing the things I thought should have been done for the clients," she says. "My trust was broken."

The most frightening part of leaving, Wilson says, was that she did not know how many clients would follow her. As it turned out, even with having to work under the constraints of a noncompete, nonsolicit agreement, most of her Merrill Lynch clients made the switch, she says. "When your clients go with you to an independent, they are coming to you because of their faith and trust and confidence in you," she says.

For DeMoss and his two partners, Charles Flinton and Lyle Turner Jr., it was in 2005 when they began seriously considering the possibility of becoming independent RIAs.

Driving their thinking was their desire to own their own business and make fee-based financial planning the core of their service model-something they felt was impractical within Merrill Lynch. "It had to do with the different types of ways we could impact individuals and their entire financial picture versus just their investments," Flinton says.

Many of the team's clients were small business owners, and they were getting questions about things such as the implementation of health benefits, payroll and lease negotiations. But the team faced obstacles in providing such service, even on a basic level, DeMoss says. For example, simply making an appointment with a client was complicated by the lack of a robust client relationship management system in Merrill Lynch branch offices, he says.

The team could have footed the bill for CRM software on its own, but because of compliance issues, it would have forced its staff to have a second computer on their desk just for the new software.

Turner, a 50-year brokerage veteran who formed the team seven years earlier, ended up being the lynchpin for the move. "I wanted to see it sort of be my legacy and grow and prosper and continue," he says.

In addition to his experience, Turner brought another benefit to the transition: Unlike DeMoss and Flinton, he wasn't bound by a noncompete, nonsolicit clause because of his length of service with Merrill Lynch. This enabled the team to more aggressively recruit their old clients, many of whom had been assigned to new Merrill Lynch advisors soon after their departure.

They ended up winning about 85% of the former clients who they targeted for recruitment.

The team, with assets under management of about $160 million, also benefited from the fact that they left at around the time the financial crisis, and the public vilification of Wall Street investment bankers, was at a fever pitch. "It gave us the ability to really expedite conversations with people once we left," Flinton says. "Very few people sat around and debated the idea of why we were leaving."

In a response, Merrill Lynch denied placing product ahead of clients.

"Client focus is the foundation upon which Merrill Lynch was built and it drives our success today," says LaMothe of Merrill. "Our advisors pride themselves on offering personalized, forward looking advice and they draw from one of the deepest and most sophisticated portfolios of financial solutions in the industry."

Despite the loss of some breakaway brokers, Merrill Lynch continues to attract and keep advisor talent, he added.
"We continue to attract and retain highly successful advisors, who are drawn by our vast product offering, superior technology, and most importantly, culture of putting clients first," LaMothe said.

Shaken Confidence
Nadine Wilkes began talking with her partner, Paul Weinstein, about leaving UBS to form their own RIA several years ago. At the time, however, she wasn't ready to make a move.

She had been with the wirehouse for 19 years, back when it was PaineWebber, when the company was "very client driven," she says.

That philosophy, however, seemed to change in recent years, as she felt the wirehouse dynamic was more centered on selling products directly to clients. There were times when the wirehouse completely bypassed her, and pushed products on clients without her knowledge.

"It almost seemed the company wanted to take the financial advisor out of the picture," she says.

What shattered her faith in the company, and compelled her and Weinstein to leave the wirehouse, was the auction rate securities crisis in early 2008. Her clients had a total of $26 million invested in the securities-assets they would eventually get back after settlements were concluded-but Wilkes felt that, in hindsight, UBS did not fully disclose the true nature of the investments.

Based on some of the internal correspondence that was unearthed after the crisis hit, Wilkes says, "I just saw the firm protecting themselves at the expense of the client."

She and Weinstein formed Weinstein Wilkes Financial Group LLC in Fort Meyers, Fla., with about $400 million under management and with Raymond James as their broker-dealer, in August 2008. What she found, to her surprise, was that transitioning to an independent RIA wasn't as bad as the wirehouse "horror stories" indicated it would be.

The compensation, she says, is about the same. At UBS, advisors could expect a payout of 30% to 35%. As an independent, it's 85% to 95%, but that doesn't include the cost of running the business.

Also, the security blanket and the potential clients that came with working at a brand-name wirehouse were less relevant than several years earlier, she says. The nation's financial collapse took care of that.

"That benefit sort of vanished overnight," Wilkes says.

Byrne of UBS counters that the wirehouse was a leader in the way it responded to the auction rate crisis. The wirehouse, she notes, supported the auctions longer than any other firm and was the first to provide accurate market pricing and loans at 100% par value to clients.

"Our settlement applied to all our client holdings-private, corporate and institutional," Byrne says. "This allowed us to draw the issue to a close, unlike some competitors who had and may still have outstanding issues related to their institutional and corporate client base.

Edgar Parrish, who along with his wife Katherine, broke from Merrill Lynch in August 2009 to form his own RIA, Parrish & Company Private Wealth Management LLC in Bethesda, Md., also sees a permanent change in the financial services landscape-and the attitudes clients and advisors have about the big investment banks.

"I think that there are certainly some advantages to size, but I also think that can be a disadvantage," he says. "We've now seen how a few people and a few decisions can send a big firm into the arms of a purchaser."