PRESS: DOW JONES NEWSWIRES
DJ STREET MOVES: MSSB Team Leaves To Set Up Independent Shop
21 August 2009
NEW YORK (Dow Jones)--Frustration with working at a major brokerage firm led financial advisers Eric Thurber, Fred Molfino, and Brett Sharkey to strike out on their own.
The high-producing team from Morgan Stanley Smith Barney left the firm a week ago to form Three Bridge Wealth Advisors, an independent financial advisory firm. The three advisers, who worked at Smith Barney for years before its recent combination with Morgan Stanley, had $2.2 million in annual production and managed $750 million in client assets. The team is based in Menlo Park, Calif., and will custody its assets with Charles Schwab Corp. (SCHW), which services more than 6,000 independent firms.
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The move is just one example of advisers looking to distance themselves from Wall Street brokerages, which have undergone heavy losses and tarnished reputations during the financial crisis. It isn't a new trend for brokers to set up independent practices, but the number who are choosing that route has increased. Among brokers leaving major firms, also known as wirehouses, the percentage who set up independent businesses climbed to 18% in July, more than tripling from 5% in January, according to Discovery Database, a firm that tracks adviser moves each month.
Discovery also said less than 30% of those brokers who left a wirehouse joined another one in July, compared with nearly 70% in January. Others went to regional firms, changed to an institutional focus, or went to banks, insurers or other types of financial firms.
Grist said the "intangible glue" at major brokerages has softened due to a host a factors, including lack of faith in senior management, management changes, plunging deferred compensation, and bad headlines from the firms.
He said more than 75% of those advisers going independent through Schwab came from wirehouses.
Over the past year, mergers in the industry have created large brokerage forces at Bank of America Corp.'s (BAC) Merrill Lynch, Morgan Stanley Smith Barney, and Wells Fargo & Co. (WFC), which purchased Wachovia Securities.
-Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com (Kristen McNamara contributed to this report.)
To be sure, the major brokerages are still a dominant force within the industry. According to Cerulli Associates, wirehouses still controlled nearly half of all U.S. adviser-managed assets at the end of 2008 - about $3.9 trillion, Independent broker-dealers and investment advisory firms oversaw about a third of adviser-managed assets - approximately $2.7 trillion.
Barnaby Grist, managing director of Schwab Advisor Services, said the firm had almost no large teams who moved in the first four or five months of the year. However, he said Schwab has seen more interest from $1 million-producing teams since June.
Bob Ellis, principal at research firm Novarica, says broker moves now still reflect the "fallout from the economic crisis" and financial meltdown. Leaving a wirehouse to become independent isn't a quick process, as brokers must settle licensing and compliance issues as well as find office space.
The Three Bridge team said clients didn't mind, or even welcomed, the move. "One of the things we found was that there was a significant lack of confidence in the banks and it goes back to their focus on short term profitability," Thurber said in an interview.
"We have had a resoundingly positive response from our clients in understanding why we decided to (move) and leave fairly significant retention bonuses and offers from other wirehouses on the table to take our practice elsewhere," he said.
A Morgan Stanley Smith Barney spokeswoman confirmed the team had left the
firm, but declined to comment on their production or prior asset figures.
Schwab has attracted many such teams in 2009, who have either chosen to set up their own independent registered investment advisory shops or join an RIA firm. In the first half of 2009 through July, Schwab's Advisor Services segment has helped 86 adviser teams set up independent practices, up from 62, a year ago.
Other companies performing such custodial services for advisers leaving wirehouses include Fidelity Investments, Pershing LLC, and TD Ameritrade Holding Corp. (AMTD).
"What we have seen is a lot of the bonds" connecting advisers to "the wirehouses have just fallen away," Grist said.