More Financial Advisors Are Breaking Away

More financial advisor teams broke away from their employer “mother ship” in 2015. Last year saw 413 financial advisor teams break away, an 11 percent increase from the previous year. Those breakaway teams brought with them average assets under management of $344 million, according to the most recent research.

While average assets under management by breakaway teams have remained consistent for the past two or three years, total assets for all financial advisor teams changing firms were $142 billion last year. Researchers said this represented an increase of from $128 billion in 2014.

The 413 financial advisor teams that moved in 2015 represent an estimated 2,000 individual advisors. Breakaway broker teams, on average, consist of three to five individual advisors, said Chip Roame, managing director of Tiburon Strategic Advisors in Tiburon, Calif.

Tiburon compiled the research from databases owned and published by trade journals.

Breakaway brokers are defined as individual financial advisors or teams of advisors who choose to leave their employers for independent broker/dealers or to form a registered financial advisory operating in the independent distribution channel.

Despite the increase in the number of broker teams leaving their captive employer environment for the independent world, such moves are often overstated in terms of their influence on overall industry numbers, Roame also said.

Breaking away with $142 billion in 2015 isn’t all that significant when wirehouses alone command $5 trillion in assets under management, so moving $142 billion out of $5 trillion “is just not as big a trend as everyone or the journalists want you to believe.”

The insurance channel also was found to be a major supplier to broker/dealers NFP Advisor Services Group, ING Financial Partners, Cambridge Investment Research, Sigma Financial and Signator Investors, the research revealed.

In 2014, NFP and ING each recruited an estimated 30 percent of their financial advisors from the insurance channel, while Cambridge Investment Research and Sigma Financial each recruited an estimated 27 percent of their financial advisors from there.

Signator Investors dipped into the insurance channel for 23 percent of its financial advisors, according to Tiburon’s research.

Every year, hundreds of advisors around the country leave wirehouses, investment banks, retail banks, insurance companies, discount brokerages and regional brokers, Roame said in a webinar earlier this month to clients.

Many more brokers and advisors — in the thousands — are fired every year because they don’t meet their sales goals, he added.

Usually a One-Way Street

Brokers and advisors who choose to seek independence and ditch a wirehouse or an insurance channel tend to embark on a one-way journey. So the departure of advisors will contribute to the growth of the independent advisor channel for the foreseeable future, Roame also said.

One of the misconceptions is that independent broker/dealers live and die by the layoffs from the big wirehouses Morgan Stanley, Merrill Lynch, JP Morgan Chase and UBS. However, that’s not true, even though the amount of assets under management by advisors at wirehouses dwarfs the asset volumes managed by advisors in every other distribution channel.

“Wells Fargo Advisor Network is really the only one that relies on the wirehouse,” Roame said.

By contrast, Raymond James Financial Services only relies on wirehouse advisors for 31 percent of its advisors and LPL Financial even less.

Will breakaway brokers provide “huge growth” over the next five years? No, Roame predicted.

Predicting brea-away broker trends depends on the retention deals that advisors are under and the run-off rates of such deals.

Over the next four years, an estimated 10 percent to 14 percent of wirehouse retention deals will expire, according to research conducted in 2013. Many of those deals are likely to be renewed to prevent productive advisors from leaving.

“There isn’t a big percentage of the captive environment that’s going to go independent in any given year,” Roame said.

“Could there be 500 breakaway brokers in 2016?” Roame asked. “Maybe, but not 5,000.”

Breaking away isn’t as risky as it was in the wake of the financial crisis when Richard Saperstein took his $10 billion worth of assets under administration from an imploding Bear, Stearns & Co. to HighTower Advisors in Chicago.

Lawyers, accountants, consultants and technology platforms have made it easier for even large advisors with a complex book of business to break away without the risk of losing either clients or a reputation in what is often one of the most important career moves an advisor can make.

“Today it’s easier, there’s a clearer path,” Roame said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].