A Tsunami of Advisors Leaving Wirehouses

According to a recent article in Investment News, the floodgates are open at the wirehouses with brokers looking for greener pastures, primarily in the under $500K production level.

"It will be a tsunami" of movement out of the major firms this year and in coming years, said Ron Kruszewski, chief executive of Stifel Financial Corp. of St. Louis. He couldn't specify how many low-producing refugees Stifel might pick up, "but we're very well-positioned to benefit from the reshuffling that's taking place," he said.

At the same time, retail revenue this year could be down 20% or more from 2008 due to lower asset levels and nervous clients, brokers said.

"I think we'll see a pretty big flight out before [the end of] June," said one Merrill rep in an office with a majority of lower producers. Merrill will implement its low-pay policy at the end of June, when veteran producers who aren't annualizing at $300,000 will be charged back for business paid out at a higher rate. That means that they will have to pay back part of their net pay from the first half of the year.

Times are hard for a lot of industries and small business owners so it's hard to feel too bad for these advisors, especially since it seems like there's ample opportunities at either niche firms or the opportunity to take a viable practice independent. The wirehouses provide a great deal of infrastructure along with a valuable brand, but these challenges can be overcome when going independent. As most advisors know, it's their personal brand that counts for more than the corporate brand when retaining clients. And as the major brands consolidate and change colors that is less of an issue anyway.

As an independent, or a small office broker-dealer affilliate, replicating the technology infrastructure of the major firms is also much less of a challenge than it used to be. If you can leverage an integrated platform that can handle your financial planning, portfolio management, client management and data integration needs you've solved at least 80% of the problem. If you can find that as a software service, you're pretty much home free since you don't even need to maintain the apps in house or need any IT support to maintain servers or manage software.

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