Wirehouses Still Top Advisor Option

(Dow Jones) The big brokerages remain the favored option for restless advisors looking to change jobs, despite all the attention given to "breakaway" brokers.

According to a survey by the Boston-based consultancy Aite Group, about one third of financial advisors who said they are considering making a move also said they would opt for a wirehouse. Roughly one fourth of those surveyed, which included employees of wirehouses and other brokerages, said they favored going independent.

The four U.S. wirehouses include Bank of America Corp.'s Merrill Lynch, Wells Fargo & Co.'s Wells Fargo Advisors, UBS AG's UBS Wealth Management Americas, and Morgan Stanley Smith Barney, which is the year-old joint venture between Morgan Stanley and Citigroup Inc.

Wirehouses still offer the biggest signing bonuses on the street, stretching all the way up to 200% or 300% of brokers' annual production, which represents four to six years' pay.

Meanwhile, leaving the wirehouse channel can be more difficult than staying because of all the effort required in going independent. The thought of managing their own compliance issues, for instance, often holds brokers back from going independent.

But that doesn't necessarily mean the wirehouse brokers are the happiest on the block.

Almost one-fourth of the wirehouse brokers surveyed by Aite Group said they were either unsatisfied or very unsatisfied with their brokerage firm.

"Despite all this money they spent on retention packages to keep the brokers there, they really aren't all that happy," said Alois Pirker, brokerage analyst at Aite Group.

Over the past two years, mergers and acquisition at legacy brokerages, Merrill Lynch, Wachovia Securities, Morgan Stanley and Smith Barney, have caused an uprooting of the retail brokerage industry.

Top producing advisors at Merrill Lynch, Morgan Stanley and Smith Barney were offered retention awards to stay with their respective new firm for seven to nine years. But that meant that the ones not being paid to stay put had motivation to leave.

Aite Group estimates that about 7,000 brokers left the wirehouses last year. The space now includes roughly 55,000 advisors.

"They are leaving the wirehouses because they didn't get a retention package, they want a high payout, or they don't want to work for a damaged brand," Pirker said.

But the retention packages have worked to an extent, in that the firms didn't lose that many of their best producers.

The retention money "buys the wirehouses time, but it doesn't buy them loyalty," Pirker said. "As the brokers reach the end of those contracts, or come close to reaching it, the appetite for breaking away will start growing."

Of the wirehouse brokers, 20% said they are more likely than not to break away from their brokerage within 18 to 24 months, representing 11,000 brokers, according to Aite Group's report.

But even if the wirehouses lose a few thousand brokers, they still stand to gain all those who would choose moving to another wirehouse over leaving that channel.