Wall Street loses RM104.3b as advisors flee

NEW YORK • Another day, another team of wealth advisors leaving a Wall Street bank.

Four UBS Group AG private bankers overseeing US$530 million (RM2.21 billion) in client assets are the latest to strike out on their own, creating a Portland, Maine-based firm called Great Diamond Partners, according to a statement on Monday. Last week, five Bank of America Corp (BofA) advisors in Atlanta overseeing US$450 million in client assets departed, while a US$6 billion Texas team split from Morgan Stanley in April.

Breakaways are occurring more frequently as advisors hoping to exert greater control and keep a larger share of the revenue bolt big banks to create boutique firms. Smoothing the way are technology ventures such as Dynasty Financial Partners, created by former Citigroup Inc executives, which provide record-keeping, trading platforms and product offerings once available only at the largest firms.

“Large complex teams require large complex solutions,” said Tim Oden, senior MD of advisor services at Charles Schwab Corp. “Before the ecosystem existed, they had no choice, but now they have a choice.”

Siphoning Talent

Other wealth-advisory firms including Rockefeller Capital Management have also been siphoning talent.

The company, run by former Morgan Stanley executive Greg Fleming, has lured teams from BofA and UBS in recent months as part of an expansion strategy.

A 10-year bull market and an increase in the number of wealthy families across the US have helped fuel the movement. Most of the recent breakaway teams have yet to be tested by a slowing economy or serious market correction, but Great Diamond founding partner Steven Tenney said some of the risks have been mitigated by improvements in technology.

“The technological advances are independent of the economy and market cycles,” said Tenney, who spent 26 years at UBS. “The best way to capitalise on that technology is by being an independent firm.”

UBS spokesman Peter Stack declined to comment.

‘Well-travelled’ Road

Great Diamond, as well as the advisors departing BofA and Morgan Stanley over the past few weeks, partnered Dynasty to set up independent companies. Breakaway teams managing a total of about US$25 billion now use Dynasty’s platform, the New York-based firm said.

“Somebody who has a business of that size isn’t going to take a significant risk and hope it works out,” Dynasty CEO Shirl Penney said in an interview. “A lot of those teams wanted the road to independence to be a little more well-travelled.”

For a company the size of BofA, which has seen three teams overseeing a total of about US$3.9 billion departing for Dynasty in the past 10 months, the losses are relatively small. The Charlotte, North Carolinabased bank’s wealth-management businesses have US$2.8 trillion in client assets.

“Attrition rates among experienced advisors remain near historic lows, at approximately 3% per year,” BofA spokesman Matt Card said in a statement, adding that the firm “offers an unrivalled platform and the full range of capabilities advisors need today to serve” clients.

Retention Rate

Still, the migration from big banks is expected to continue as improvements in technology and the growth of turnkey companies like Dynasty, Chicago-based HighTower Advisors and Focus Financial Partners make it easier for teams to set up their own businesses. Independent and hybrid investment advisors will likely make up 28% of the market by 2020, compared to 25% in 2015, according to analytics firm Cerulli Associates.

How the breakaway teams fare financially is based largely on whether or not their clients follow, said Alan Johnson, MD of compensation consultant Johnson Associates. Advisors who left big firms to start boutiques retained about 87% of their client assets on average, a Schwab survey found.

“If you think you can keep all of your clients, then of course you’re going to make more money,” Johnson said. “The real question is how many clients are you going to lose?”

Banks have become more aggressive in trying to retain wealth advisors, making hard-to-refuse offers to top producers, Johnson said.

“It goes on all the time,” he said, but added, “You have hundreds of these people and you can’t cut deals for everybody.”

‘Hot Summer’

Jeff Erdmann, who leads a team for BofA’s Merrill Lynch wealth-management business, said he’s never considered going independent.

“If you’re completely on your own, you’re trying to reinvent an incredible machine,” said Erdmann, who is based in Greenwich, Connecticut. “Having the association with a large global bank gives security to families.”

Penney said independent advisors on Dynasty’s platform typically see 25% to 40% more in average cashflow than at big banks. “They own all the equity in the business, so they own all the upside as well,” he said.

Penney declined to say how many other teams are poised to jump.

“We’re going to remain busy,” he said. “We’re going to have a hot summer.” — Bloomberg