The career kick-offs of two successful wirehouse advisors were as different as the countries where they were born. Amit Stavinsky started as a lieutenant in the Israeli Air Force. Francis Hoey, from Pennsylvania, was a college track star who, after graduation, traded commodities in Philadelphia.
But in 2010 both FAs — one in California by now, the other yet in Pennsylvania — celebrated an identical career milestone: They had each taken the momentous step to become a registered investment advisor. And both had chosen Schwab Advisor Services as custodian.
Part of a growing trend, Stavinsky, 47, and Hoey, 42, were positive they wanted to transition to the independent RIA model. But along with the happy anticipation and excitement, they were — like other advisors before them — beset by fear of the unknown.
"Think of a 1,000-piece puzzle that you put together your whole career," says Stavinsky, managing director of investments at Tamar Securities, in Woodland Hills, Calif., and formerly a 14-year advisor at Oppenheimer & Co. following three years with Prudential Securities.
"One day you decide to stand up and kick that puzzle out the window. You've broken apart everything you've done, and all the pieces are floating around. The moment I put in my resignation, I thought: a value creation came apart in one instant. My challenge was to put all the pieces back together and create a business [more] for the benefit of the client," says Stavinsky, now managing more than $165 million in client assets.
For Hoey's part, the biggest source of anxiety was the requirement to become chief compliance officer of his firm. He says such fear was instilled by the wirehouse from which he'd resigned. He now heads Hoey Investments, in West Chester, Pa., with $65 million in assets under management.
"Growing up in the broker-dealer world," says Hoey, previously a Merrill Lynch advisor for 12 years, "they'd tell you that the SEC or FINRA are coming to your door every day to shut you down. They have a very fear-oriented culture, which makes you believe it's too hard to go out on your own."
Nonetheless, breakaway brokers are continuing to leave large firms in favor of going independent. Most RIAs are opting for dual registration — as both a fee-based RIA and an FA affiliated with a broker-dealer that's compensated per transaction. Being a "hybrid" affords a wider choice of product.
According to research firm Cerulli Associates, in Boston, those who are dually registered accounted for more of the 2009-2010 RIA-channel growth in both assets and advisors.
"The RIA is an appealing business model for many because clients perceive RIAs to be more objective than wirehouse brokers," says executive search consultant Mark Elzweig, president of Mark Elzweig Co., in New York City.
"It's a trend that's slowly gaining momentum," he adds, "but I think the breakaway broker thing is really exaggerated. The wirehouse model works for most advisors because it's a turnkey situation, a convenient place to do business. Advisors don't want to research health care plans or when their sales assistant leaves, go out and hire a new one. They want to bug their branch manager about it."
For Hoey and Stavinsky, however, working at wirehouses had become increasingly uncomfortable. They say they felt restricted and unable to provide as many product choices as they would as independents.
"In a wirehouse, you operate in a very confined environment. It's almost like working for McDonald's: You can buy the hamburger only from McDonald's, the buns only from McDonald's, the fries only from McDonald's. As long as you buy everything from McDonald's, everything is fine," Stavinsky says.
Advisor Hoey in 1998 joined his father Frederick Hoey Sr.'s longtime Merrill practice in Exton, Pa., after working elsewhere in the firm for a year. He took his first step on the road to transitioning to the RIA space when, in 2008, he left to join a small broker-dealer and opened an office in West Chester, Pa.
Why? "The amount of trouble that Merrill Lynch was getting into [during the financial crisis] was not meeting my clients' best interests," he says. "The products they were getting involved in were more for the benefit of Merrill Lynch than the client or broker. It grew to a point where they were the dominant factor in the relationship."
Hoey had anxiety, however, about becoming an RIA, especially when it came to compliance. The RIA model would require him to oversee that key area, as well as deal with acquisition of technology and research. That's why he chose to join the already-established b-d, Cambridge Investment Research, and not pursue RIA registration.
Yet things went poorly, chiefly because the firm failed to have the expertise and research to which Hoey was accustomed at the wirehouse, he says.
"It wasn't a good fit. After two years, my staff and I had to move on. I decided that I needed to go to the RIA model," he recalls.
One big attraction this program offers is that advisors receive 100 percent of fees billed to clients. Further, though they may be forfeiting the big signing bonuses wirehouses typically pay, independent RIA practices can, in time, command hefty sale prices.
In contrast to Hoey, Amit Stavinsky segued directly from a major firm to the RIA model. To be sure, his move was not without angst.
"I was concerned about throwing away that security blanket and starting from scratch," he says, "But I wanted to reduce risk for my clients, have a big value proposition and be able to get product at institutional rates. I wanted to gain independence and make more money."
Most of all, Stavinsky wanted "complete freedom in choosing the best investments in the entire universe. That's not that easy in a big wirehouse," he says.
It's scarcely surprising that FAs who exit wirehouses to launch their own enterprises are soured on that particular corporate model. Elzweig notes that working in such a culture likely wasn't organic for them in the first place.
"The people that leave have the genetic wiring to be business owners. That's why they leave! If that's who you are," he says, "you're not going to like being managed in a wirehouse."
