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Small Wirehouse Teams Are Sick of Neglect

By Thomas Coyle June 19, 2017

Smaller wirehouse teams are on the move these days, pushed by home-office indifference and pulled by warmer welcomes at regional firms and independent broker-dealers.

“If you’re not a big producer, they don’t want you,” says advisor headhunter Danny Sarch, describing the wirehouse take on teams with revenue of much less than $1 million a year. “They don’t care about you.”

To be tolerated at a wirehouse, a team producing from $500,000 to $750,000 must operate “straight down the fairway” and not consume home-office time with special requests and thorny client-service questions, says Sarch.

For recruiter Mark Elzweig, the topline value proposition for neglected wirehouse practices is pretty clear. “Independent firms offer broad-based platforms that in most areas are very competitive with those of wirehouses” while “regionals offer aggressive recruiting packages” that have proved attractive to big producers as well as more modest practices, he says.

Meanwhile, in addition to payouts as high as 90% of gross compared to at most 60% at wirehouses, indies “offer advisors the ability to own their own practices and to craft the sales price whenever they step out of the business,” according to Elzweig.

Linked to Elzweig’s last point about the independent advisor’s clearer path to monetizing a practice is, says Sarch, the realization among some small-team wirehouse FAs that jumping to an IBD puts them at the wheel after years in the backseat. As an independent broker “you’re a free agent with an LLC that you own so that a service provider like your broker-dealer has to earn your business every day or you will fire them – and they know it.”

And relatively small teams, which a wirehouse wouldn't dream of making special accomodations for, are the kind of practices IBDs exist to serve, say industry watchers.

In recent weeks, a number of small wirehouse teams have jumped to regionals, including some Orlando, Fla.-based advisors that went from Merrill Lynch to Raymond James. Among new moves on the independent side was that of a Wells Fargo Advisors team in Greenwood, S.C., to Voya Financial Advisors.

Tom Halloran is head of this part of Voya Financial, the insurance and investment firm that used to be called ING U.S. He says the pace of wirehouse-to-IBD moves has picked up markedly in the past six months.

Tom Halloran

Traditionally, “like would go to like,” says Halloran. By this he means wirehouse teams would move to other wirehouses, and other regional and independent teams would stay in respective channels characterized by sharply different service levels. “But that has changed.”

Formerly, “the wirehouses had much better name recognition. But that’s changing, and we probably advertise more than all of them put together,” Halloran says. “The wirehouses used to spend more on technology, but now with innovation and the cost of aggregation coming down, independent platforms like ours provide analogous technology. That leaves wirehouses with an advantage over us in offering clients participation in IPOs — which really doesn’t get into the retail market anymore, so that’s moot.”

In addition, with three of the four wirehouses putting the brakes on recruitment bonuses, and with IBDs offering “much better payouts and much better access to top executives,” the case for leaving the wirehouse channel – especially for small teams – is more compelling now than ever, says Halloran.

Sarch agrees. “There’s a big healthy middle class of wirehouse teams that knows it’s being mistreated” as their head offices seek to build businesses based on big, up-market teams augmented by call centers and online platforms for down-market investors.

Adds Sarch: “For these advisors, the question more and more is, 'Why are you still there?'”