starting to see opportunities in wealth management as increasing
numbers of private bankers look to set up on their own and RIAs
attempt to broaden their offering. Charles Davis
reports on some of the offerings from the main players.
In today’s investment climate, where the wirehouses haemorrhage
jobs and many newly independent advisers see a greater need than
ever to run both fee-based and adviser-side businesses, Fidelity’s
wealth management arm senses an opportunity to support breakaway
brokers in the United States.
Go deeper with GlobalData
Its launch of the Fidelity WealthCentral brokerage workstation,
and the recently launched HybridOne offering for dually registered
advisers are both aimed at capitalising on that resurgent
sector.
Many of the brokers who “break away” have a combination of a fee
and commission-based business, and coping with the complexity that
engenders can overwhelm small shops.
A recent Fidelity survey said brokers believe 60 percent of
their client base would walk out the door with them should they go
independent or join a new firm, and 31 percent would expect
three-quarters or more of their clients to follow them.
The survey of financial advisers at national wirehouses,
regional brokerages, insurance broker-dealers, or bank
broker-dealers found that 36 percent of the brokers have recently
considered either starting their own firm or joining an independent
broker-dealer.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataSpecialised products
HybridOne, a new offering designed to provide dually registered
broker/dealer and Registered Investment Advisor (RIA) firms, as
well as individual brokers and advisers, is designed with those
breakaway advisers in mind.
Fifty-five brokers with more than $7 billion in assets have
selected Fidelity Investments as the custodian for their newly
established independent registered investment adviser firms during
the first six months of 2008. That has more than doubled the assets
from new breakaway clients during all of 2007.
According to the Cerulli Intermediary Markets 2008 report,
registered investment advisory assets under management had compound
annual growth of about 16 percent, to $1.7 trillion, from 2004 to
2007. The hybrid market is one of the fastest-growing segments of
financial advisers and firms in the US. Nearly three-quarters of
all brokers and advisers manage some combination of commission and
fee-based business, according to the 2007 National Financial Broker
and Advisor Sentiment Index.
Fuelling the hybrid model is the dissolution of the
Broker-Dealer Exemption Rule. Originally proposed by the Securities
and Exchange Commission (SEC), the exemption rule enabled brokers
to function like RIAs provided that certain conditions were met
without making them subject to investment adviser regulation.
In 2007, however, the US Court of Appeals rejected the ruling,
and broker-dealers who wished to provide fee-based services were
required to register as RIAs.
By going the hybrid route, an adviser can sell a client a
commission-only product, such as a variable annuity, in addition to
a mutual fund wrap product. This allows for a more holistic
approach to meeting and servicing the needs of clients as well as a
more integrated relationship.
Because of that, Fidelity Institutional Wealth Services has been
putting more resources into the practice management program, with
help from its parent company, which has $1.1 trillion of assets
under management. Fidelity Institutional Wealth Services has more
than $355 billion in custody on behalf of over 3,800 clients, as of
June 30, 2008.
Fidelity’s push for breakaways reflects the fact that the
fee-commission mix of business that is typical of a wirehouse
adviser is gaining currency on the independent side of the advisory
industry.
Broker-dealers and custody firms are fully embracing so-called
hybrid advisers – those who are part RIA adviser and part
registered rep – offering them more flexibility and extra
services.
Other providers include TD Ameritrade, which has a Solutions
Consulting group and offers a practice management program in
partnership with CEG Worldwide. The partnership is third in market
share behind Schwab – which calls its program GrowthPoint – and
Fidelity. All report brisk growth.
Regulation: RIA pact gathers pace
Even as more brokers consider breaking away from US investment
banks, the legal handcuffs slowing their exodus are slipping away,
through the courts or by voluntary agreements.
A voluntary agreement which restricts lawsuits between wealth
managers that hire each other’s staff has seen its signatories
double since August this year, taking the total to 96.
The pact was founded in 2004 by three of the US’s largest wealth
managers: Citigroup, Merrill Lynch and UBS. The recent spike in
interest comes after an August decision by the California Supreme
Court which voids narrow-restraint exceptions for non-competition
agreements. Many brokerage firms, including most of the wirehouses,
require brokers to sign employment agreements that restrict them
from soliciting clients or taking customer information once they
depart the firm.
The California decision means non-compete provisions, and
possibly non-solicitation and other restrictions, no longer have a
sound legal standing in California, attorneys say, and California
is often a legal harbinger of things to come.
The plaintiff in the California case, Raymond Edwards, was a tax
and estate-planning lawyer who worked for Arthur Andersen LLP of
Chicago until the company ceased operations in June 2002 after
being indicted for its role in the scandal involving Enron Corp of
Houston.
In 2003, Edwards challenged Andersen’s non-compete agreement,
which prohibited him from soliciting Andersen clients for a year or
more after leaving the firm. Firms typically leverage these
restrictions to seek restraining orders against defecting
brokers.
Under the protocol, a registered representative moving from one
participating firm to another is permitted to take limited client
contact information, such as names, addresses, e-mails and phone
numbers.
