The Breakaway Push Is Sputtering Out

Plus, it's easier and more comfortable for most advisors to keep the business model that they've always had. Many advisors who have kicked the tires at independent firms have concluded that they are not prepared to do all the additional work required to go independent.

There will always be wirehouse advisors with the entrepreneurial DNA to choose independence. But the vast majority of wirehouse advisors will remain within the fold. They will continue to prefer the convenience of the turnkey wirehouse model. They will remain convinced that the credibility of a household name is a powerful tool to help them attract big accounts.

The independent option will continue to grow but not as dramatically as many suggest. Industry trade magazines regularly feature interviews and stories about advisors who've gone independent. These stories might be headlined, "Here's why Joe broker turned down a cool million dollars to go independent!" These tales are relative outliers, and that's why they fascinate.

Independent firms and their allied recruiters frequently claim that an increasing number of wirehouse advisors are demanding customization and squirm under the stifling wirehouse bureaucracy. Plenty complain, for sure. That doesn't translate nearly as often as you would think into those advisors going independent. As the saying goes: "Believe the behavior."

Money talks even when wirehouse advisors select independent venues. Some of the most successful recruiters of high-end wirehouse teams are "Super Independent" firms like Hightower, Focus Financial Partners and Steward Partners. They speak the language of high-end wirehouse advisors. They offer serious money to join as well as broad-based platforms and support services.

Bottom line: in the next three years, wirehouse advisors will continue to kick the tires at independent brokers. But let's not overhype the trend. It's good for advisors to have a variety of potential business models. But it's important to remember that the wirehouse model works well for the majority of current wirehouse advisors and probably always will.

The View Ahead

Here's what to expect as many existing retention awards expire by 2019:

1. Deferred compensation programs will not help stem wirehouse defections. These programs don't engender loyalty. Back in 2015, some of the wirehouses souped up their deferred compensation programs. They pale in comparison to potential 150% upfront recruiting packages.

2. The focus at wirehouses will be on incentives that actually work. Wirehouses will step up their efforts to partner older advisors nearing retirement with younger advisors. This is by far the most effective retention tool out there. Firms will also boost their promotion of stickier, harder to transfer products like unified managed accounts and banking services. While these products may benefit clients, it's not lost on wirehouses that they make it more onerous for advisors to move client assets elsewhere. Home office-run portfolios will be promoted as well.

3. The broker recruiting protocol will hold. Wirehouses will stay the course with the protocol because it's in their own self interest. They will want to bolster their own recruiting efforts and avoid publically embarrassing tugs-of-war over investor assets.

As I pointed out recently in an article at ThinkAdvisor ("Why the Broker Recruiting Protocol Is Here to Stay"), a catalyst for the protocol's formulation was press coverage of the ugly disputes that arose when advisors changed firms. Departing brokers were routinely slapped with temporary restraining orders (TROs) by their old firms, amid fights over whether clients were free to follow their advisor.

This was not the image that senior management at the wirehouses wanted to project to well-heeled investors. It still isn't. Major brokerage firms would be loath to blacken their names by returning to a TRO-centered strategy.