(Dow Jones) The big brokerages don't want to make independence their main business, but some industry experts say it would be profitable for them to tap into the breakaway movement.
Of the three biggest brokerages, only Wells Fargo Advisors has an independent channel that its brokers, along with others, can join if they decide to leave the wirehouse model. Morgan Stanley Smith Barney and Merrill Lynch have no such option.
Merrill Lynch does have a registered investment advisor, or RIA custody business for money manager services, but it is not actively growing that business, and its employee advisors can't move to that channel. Representatives from Merrill Lynch and Morgan Stanley Smith Barney declined to comment on whether they have plans for an independent outlet for their advisors.
Wells Fargo Financial Network, or FiNet, is the independent channel that grew out of the 2001 acquisition of a Florida-based independent brokerage, J.W. Genesis, by First Union Securities. Soon after, First Union merged with the retail brokerage arm of Wachovia Corp. Wachovia began allowing employee advisors to switch to FiNet in 2006. Wells Fargo then acquired Wachovia at the end of 2008.
Statistics on broker movement show the trend toward independence to be more than a short-term product of the upheaval the industry suffered in the financial crisis. There could be good money for brokerages in joining, rather than fighting, it.
One Morgan Stanley advisor in the South says he knows why the wirehouses don't make the move. "They don't want to give that many people that kind of freedom," he says.
The brokerages may be hesitant to appear to be encouraging independence for their own advisors, as it would give advisors more ownership of their clients.
But there are other good reasons to be cautious, including the expense of redesigning operations built for a traditional employee model and taking on competitors already in that space.
Morgan Stanley Smith Barney and Merrill Lynch could also weaken their brands by offering an
independent channel because independent advisors generally are lower producers, averaging about $300,000 in annual production. The typical wirehouse advisor averages twice that.
But some observers believe it could be worthwhile because it would add more volume to the
clearing arms of the firms, which would spread out their costs and essentially be profitable for them.