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$3.5B Wirehouse Team Jumps After Losing $2B in Assets

By Murray Coleman August 3, 2017

After spending nearly two decades at Morgan Stanley predecessor firms, advisor Ronald Kikawa decided to jump to wirehouse rival UBS. But that was in 2007.

Now, the Honolulu, Hawaii-based advisor has decided to make another move. Kikawa’s nine-member team, which managed $3.5 billion at UBS, is taking up shop at Raymond James & Associates, the independent broker-dealer’s employee channel.

“We don’t like to move – it’s very disruptive,” says the 68-year-old Kikawa. “Basically, we only moved this time because we felt forced to do so.”

More than a year ago he started seeing changing regulatory ripples from the Department of Labor’s new rule, one mandating that advisors must act as fiduciaries in dealing with retirement accounts.

One of the overarching themes Kikawa has seen take root as a result of the DOL rule is a move by large brokerages to limit advisors working with institutional clients to home office-approved master lists of third-party investment managers.

Those include investing pros overseeing mutual funds and separately managed accounts used by retirement plan sponsors, endowments, foundations and other nonprofits.

“This move to greater use of approved master lists isn’t just taking place at UBS,” Kikawa says. “What we’ve found is that a lot of other major brokerages and wirehouses now want their institutional advisors to give recommendations only for managers appearing on their approved lists.”

At the same time, UBS tells FA-IQ that company policies haven't been adversely impacted by regulatory changes. In fact, the wirehouse's officials insist that advisors still have plenty of avenues to explore in working with different outside managers.

"Our institutional clients are permitted to use managers that we have not researched and approved so long as they acknowledge that we have not recommended such managers," says a UBS spokesman.

After more than a year’s worth of searching – and billions of dollars in lost assets resulting from such legal twists – Kikawa's team decided in late June to make a move. Still early in the process of setting up shop at Raymond James, FA-IQ was able to catch up with the veteran FA last week to get his views on joining the independent broker-dealer.

Ronald Kikawa

Q: Why did you feel forced to move from UBS?

A: We were losing clients and it was mainly because we weren’t able to provide fiduciary advice to many of our institutional clients. We just weren’t being allowed anymore to give advice about investment managers who weren’t approved or researched by the firm. We’ve lost more than $2 billion in assets over the last year.

Q: How did the DOL rule impact that loss of business?

A: The rule began to be implemented on June 9, but all of the wirehouses started to change their policies in 2016. I’m not criticizing firms for adjusting their policies. We’ve always acted as fiduciaries. But when everyone who handles retirement accounts is deemed a fiduciary, then it just makes sense that UBS and others reexamine a lot of their rules. In our case, we just found some of these changes too restrictive for our clients. Some of our large institutional clients just didn’t want to terminate relationships with certain managers just because they weren’t on our firm’s approved lists.

Q: As a large brokerage, did Raymond James also change some rules?

A: Yes, as a large firm I imagine they also have changed some of their requirements in keeping with the new fiduciary standards. They have approved lists of managers, too. But they’re allowing our clients to maintain the managers they already have in their accounts. We just found Raymond James to be more flexible in terms of allowing our institutional clients to retain managers of their choice.

Q: How much of your practice is institutional based?

A: A majority of our assets come from working with institutional accounts like 401(k) plans, pensions, endowments, foundations and other nonprofits. But I started off working largely with high net worth individuals. They still represent about 50% of all of our accounts. But in terms of total client assets, around 80% today are institutional-based.

Q: Any other major reasons for moving to Raymond James?

A: We were very satisfied with our relationship with UBS. This wouldn’t have happened if 7,000 other members of our firm hadn’t been forced to become fiduciaries all at once. Even for those of us already working as fiduciaries on behalf of our clients, the legal environment we operate under has changed.

Q: So this is an industrywide phenomenon?

A: Yes. I think it’s good for the client. But it’s not all good that every retirement advisor is becoming a fiduciary at the same time. The liability to both advisors and wirehouses these days is forcing change.