Model Non-Employees

It's much the same story at TD Ameritrade Institutional, where 50 percent of breakaways are joining an existing practice. During the 2009 fiscal year, the firm took on 200 new advisors. During the first six months of the current fiscal year, TD Ameritrade added 124 advisors — putting it on track to beat last year's numbers.

"I've never seen a sales pipeline like we have now," said Tom Bradley, president of TD Ameritrade Institutional. "We've built up a pipeline of over $240 billion in assets from potential breakaways: individuals we have uncovered that are showing some level of interest. It's an indicator. Before the financial calamity, we didn't have a pipeline. We've gone from near zero to $240 billion overnight."

Like others, Michael R. Durbin, president of Fidelity Institutional Wealth Services, says there is less urgency in the tenor and pace of breakaway activity now that the financial crisis has subsided. And to the good, he adds, the firm is looking at larger teams and asset pools — bigger pickings than many of the smaller breakaway brokers that were pushed out or opted out a year ago. Fidelity helped 50 broker teams transition to independence in the first quarter of 2010, an increase of 20 percent compared to the first quarter a year earlier. The majority joined Fidelity's RIA platform.

"The overall trend is still faster than it was going into the crisis," Durbin points out. "What's clear from the advisor's perspective is there isn't any kind of value these days in being part of a branded, big financial services firm. In a lot of ways that brand is still a liability. I see advisors putting distance between themselves and those firms."

In a notable twist, Kevin Richardson, an advisor since 2001, left Merrill Lynch for LPL Financial in February because the brand wasn't opening doors — in fact just the opposite. "People already dealt with Bank of America in one way or the other," said Richardson, 44, who two months into the transition had $30 million in assets under management at his new Monterey, Calif., office. Slowly, he said, he is working back up to $85 million in assets, the amount he managed when he left the wirehouse. "I want people to know it's Kevin Richardson, not one of thousands of advisors who work for a wirehouse"

Durbin, meanwhile, believes that many advisors still in a wirehouse setting have adopted what he calls a "relative independent-mindedness." "Even post-crisis, they're having to answer questions about their affiliation," he said. "A lot of folks in our pipeline are the ones who have now gotten through the crisis, they are getting to know their new ticker symbol and they are already thinking independently even though they are sitting in Brand X."

Eric Thurber, founder and managing director of Three Bridge Wealth Advisors in Menlo Park, Calif., moved his six-member team from Morgan Stanley Smith Barney to Schwab almost a year ago after losing faith in the wirehouse model.

"We did a month or two of due diligence on other wirehouse firms, naturally an easier move for us. To turn down the checks from our existing firm and offers from others that were substantial made us pause," said Thurber, 40, whose group has $250 million in assets under management. "But we felt strongly if we went to another wirehouse firm that we couldn't go back to clients and say it was going to be any better. Were our clients going to be in better shape? No."

Another factor affecting play today: firms like HighTower, Rehmann Group and United Capital Financial Partners — outfits that have created a clever model around incubating or basically becoming the employer of former wirehouse reps. "The emergence of these firms that function as the back office for the breakaway is pretty comforting for individuals who don't want to start their own business," according to Mark Tibergien, CEO of Pershing Advisor Solutions. SeaCrest Wealth Management is another in the new lineup of independent firms offering an equity stake to advisors as well as a more entrepreneurial environment

It's worth noting, too, that many independent broker-dealers also now offer an RIA solution. LPL Financial, the nation's largest, at year end had 92 RIA firms on its platform with $7.3 billion in assets under custody. The RIA launched in late 2008.

"We do see interest in our hybrid or RIA platform, particularly for those coming out of the wirehouse," says Bill Morrissey, LPL's executive vice president of business development. For the 12-month period ended March 31, LPL added a net of 450 new reps and advisors, down from a net of 750 for the 12-month period ended Dec. 31. Historically, one-third of LPL's recruits come out of a wirehouse. With the market in recovery, Morrissey says he doesn't rule out a pickup as the year advances.

Tiburon Strategic Advisors estimates that $200 billion will flow out of the wirehouses this year in the hands of breakaway brokers — not much when you consider that wirehouses hold $6 trillion in assets under administration and under management, according to Tiburon's managing principal Chip Roame. But, he adds, it's "a big stinking deal" when looked at through the prism of the overall independent channel, which Tiburon puts at $2.5 trillion.

"The real question is: Could $200 billion become $1 trillion? Could there really be a flood one day? To me, it's all about how the wirehouses respond to brokers," says Roame.

Roame is betting that the wirehouses won't experience a change in mindset and that they will continue to "buy their brokers" with huge monetary incentives. But what happens if Congress forces brokers to adhere to a fiduciary standard, putting them on the same side of the table as RIAs? Presumably, it would help level the playing field. Sallie Krawcheck, president of Bank of America's Global Wealth and Investment Management Division, which includes 15,000 Merrill Lynch brokers, went on record in April supporting a fiduciary standard.

Another subtle development is the fact that many RIAs are beginning to look like small broker-dealers.

"The most successful RIAs are now getting to a size where they are starting to resemble organizationally a wirehouse. It's like the kid who's starting to look like Mom and Dad," notes Palaveev. "They have a lot of decisions they have to make that look like those of a wirehouse. How do you keep the advisor involved emotionally and professionally and stay profitable without compromising? That's the next growth phase for the RIA industry: finding a business model that allows them to operate on a large scale as opposed to a mom and pop."