Advisory-service provider takes aim at “breakaway brokers”. Another registered investment advisory-service provider is making a play to attract disaffected brokers. Schwab Institutional has just published a report highlighting the “the opportunities available for financial advisors interested in becoming independent.” The move follows the late-May release of TD Waterhouse Institutional Services’ “Roadmap to Independence,” which it describes as a “comprehensive new program for registered representatives who want to make the transition to become independent registered investment advisors” (RIAs).

But where TD Waterhouse’s “Roadmap” is intended to help registered reps who have already decided to make the leap to independence, Schwab takes a more purely informational approach with “Going Independent: Why Many Successful Financial Advisors are Starting or Joining Independent Firms.” Both TD Waterhouse and Schwab draw on research from Seattle-based business consultancy Moss Adams; Schwab, however, adds insights on the high-net-worth market from New York-based HNW, Inc.

“Our goal is to provide advisors considering independence with the information they need to make an educated decision,” says Michelle Crethar, a v.p. with Schwab Institutional.

Growing

The independent advisory channel, which distributes about $13 trillion in assets, is the fastest growing outlet in the financial service arena, says Chip Roame, managing principal of Tiburon Strategic Advisors, a Tiburon, Calif.-based business consultancy. Fee-only independent broker-dealers (IBDs) set the pace in terms of the number of new practitioners; RIAs in terms of asset growth.

“Breakaway brokers represent one of the more interesting developments in the financial advisory business," Moss Adams consultant Mark Tibergien says in a TD Waterhouse release. “As wire house reps recognize different business models that have a client-centric orientation, they see an opportunity to both improve their client service and enhance their practice economics by leaving the employee-based cocoon and moving into the [RIA] platform.”

According to Schwab, the principal attractions to the breakaway broker of starting or joining an RIA firm are a desire to have a more client-focused rather than product-centric practice, the ability to build equity in and manage a fee-based business, the chance to keep more of the revenue earned, a reduction in conflicts of interest and access to a wider range of products for their clients.

Pointing to research gleaned from the Financial Planning Association’s “2004 Financial Performance Study of Financial Advisory Practices” – by Tibergien and his Moss Adams colleague Bethany Carlson – as well as “other relevant industry reports,” Schwab says the RIA model provides “the most income for advisors [and] the most independence, as compared to the broker and [IBD] models.” As an example, Schwab says that an RIA who brings in a $1 million a year is apt to realize a total income of $346,000 as against a total take of $298,900 for an IBD rep and $275,000 for a wirehouse broker.

Schwab also asserts that RIAs are becoming the advisor of choice for high-net-worth investors. By 2004, Schwab says, nearly 48% of high-net-worth households relied on RIAs compared with 30% in 2001. Meanwhile high-net-worth households’ reliance on wirehouse brokers slipped to 30% by 2004 from 40% in 2001. Schwab seems to use the Spectrem Group’s definition of “high net worth” as referring to households with at least $5 million in net worth, primary residences aside.

According to Schwab’s Crethar, data like that is turning heads in the brokerage world – and Schwab wants to be front and center in the minds of brokers inclined to join the growing ranks of independent advisors. “As high-net-worth investors increasingly turn to independent advisors for unbiased financial advice, Schwab Institutional is committed to helping independent advisors with all aspects of their business, from starting a firm to managing and growing their business.”

San Francisco-based Schwab Institutional provides custodial, operational and trading support to about 5,000 RIAs. With assets of over $350 billion, it accounts for about a third of Charles Schwab & Co.’s overall custodial business. In 2004 Schwab Institutional took in about half of Schwab’s $50.3 billion in net new money.

New York-based TD Waterhouse Institutional Services provides custody and clearing services to about 2,600 RIAs. TD Waterhouse, a subsidiary of Toronto, Ontario-based TD Bank Financial Group, is slated to merge with Omaha-based Ameritrade. –FWR

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