U.S. broker defections shift $86 billion in assets in 2012

By Ashley Lau

NEW YORK, Oct 4 (Reuters) - So far this year, top U.S. brokers managing more than $86 billion in client assets have decamped for a rival firm or decided go it alone - a troubling trend for big brokerages as teams with larger books of client assets depart.

Included in that pool are 12 teams that each managed more than $1 billion in client assets. Many industry experts say that in years past, the number of teams that size leaving in a year could be counted on one hand.

Some veteran advisers say they feel less tied to their firms after they were swallowed up by big banks and other Wall Street nameplates.

Other veteran brokers have left amid client concerns over negative headlines about big-bank parent companies, the winding down of merger-related retention contracts, dissatisfaction with changes at their firms and the lure of starting anew.

Because of their longtime client relationships, veteran brokers also say they are more confident in being able to bring their clients - and their assets - with them when they leave.

Morgan Stanley Wealth Management and Bank of America's

Merrill Lynch, the top two U.S. brokerages by client assets and adviser headcount, have felt the brunt of major adviser defections through the third quarter.

More than half of the $86 billion pool of client assets switching hands so far in 2012 came from advisers departing the two firms, based on moves tracked by Reuters. Year-to-date, at least 18 3 veteran advisers who managed more than $2 4 .8 billion in client assets have left Morgan Stanley, while at least 136 v eteran advisers who managed more than $23.3 billion in client assets have left Merrill Lynch.

Reuters tracks the movement of individual advisers or teams that manage around $100 million or more in client assets, which typically translates to an annual production of $1 million or more in revenue. Some 228 broker teams left one of the top four U.S. brokerages this year, as tracked by Reuters.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic of broker movement: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Merrill lost the majority of those advisers and assets in the first half of the year, while Morgan Stanley saw a bigger portion leave in the third quarter, in what brokers and industry consultants attributed to growing frustrations with technology issues after the July completion of the merger of Smith Barney and Morgan Stanley brokers onto one platform.

Morgan Stanley declined to comment for this story. Merrill said the firm has been focused more on developing its existing practices, including its hiring of new trainees. Merrill also said the top advisers who join its firm bring "significantly more assets" than advisers who leave.


Veteran advisers tend to manage more money and have more deeply rooted client relationships. An adviser with 20 or more years of experience who goes independent often brings up to 95 percent of his or her clients' assets along, recruiters say.

Four of the biggest teams to move this year, each with more than $1 billion in client assets, went independent.

That has added to a decline in the sliding market share of the biggest U.S. brokerages - so-called wirehouses - Bank of America Merrill Lynch, Morgan Stanley Wealth Management, Wells Fargo Advisors and UBS Wealth Management Americas.

According to a Cerulli report released on Monday, the market share of these brokerages is forecast to fall 6.9 percentage points between 2011 and 2014 from 41.1 percent to 34.2 percent. Meanwhile, regional firms are expected to increase their share by 3.5 percentage points.

Defections at the largest brokerages remain a small fraction of their overall client assets under management -- Merrill still has roughly $1.8 trillion and Morgan Stanley has about $1.7 trillion. But losing top brokers can hit future revenue and leads to higher recruiting costs for a firm.

UBS AG's Wealth Management Americas, for example, said in its latest quarterly report that it spent 10 percent more on compensation commitments and advances related to newly-recruited financial advisers than it did last year.

"A steady volume of big teams certainly rips bigger holes in a firm's book, and they need to hire bigger advisers to fill those gaps," said Al ois Pirker, a research director at Boston-based Aite Group, w hich studies wealth management trends.


Roughly half of the teams tracked by Reuters went solo or joined a smaller regional firm or a boutique private bank. Smaller firms are often attractive to some advisers since they resemble the small-size firms where many brokers started their careers.

St. Louis-based Benjamin Edwards & Co, for example, a four-year-old boutique brokerage with family ties to the now-defunct A.G. Edwards & Sons, has landed the majority of its new recruits this year from Wells Fargo Advisors - which acquired the original A.G. Edwards' brokerage force via its shotgun marriage with Wachovia in 2008.

The firm has added at least 25 veteran advisers, all legacy A.G. Edwards, from Wells this year.

"I think there are some really meaningful characteristics that exist among smaller firms that impact the way an adviser works and behaves," said Tim White, a Texas-based financial services recruiter. He believes regional firms will have a resurgence "simply because they're not as bureaucratic."

Many smaller firms say they are able to offer a more nimble adviser force, easier access to upper management and less pressure to fuel the bottom line.

"We haven't undergone a lot of the problems that big firms have," Jerry Lombard, president of Janney Montgomery Scott LLC's Private Client Group, said in an interview in July.

Philadelphia-based Janney, with roughly 730 advisers, is less than 5 percent the size of the top U.S. brokerages, but has scored more than $1.4 billion in client assets managed by advisers joining the firm in 2012, including teams from Morgan Stanley, Merrill Lynch and Wells Fargo.

St. Petersburg, Florida-based Raymond James also added advisers who managed more than $4.3 billion in client assets at their old firms so far this year, and Milwaukee-based Robert W. Baird & Co, added advisers who managed more than $3 billion.

Many disenchanted brokers leaving for smaller firms echo the thoughts of Vann Wilder, a legacy Citigroup Smith Barney adviser who joined Morgan Stanley Smith Barney after Morgan Stanley bought a majority stake in the firm in 2009.

Wilder and his brokerage partner Van Martin managed $300 million in client assets at Morgan Stanley and left in August to join Raymond James in Florida. Wilder said after 31 years at the same firm, he began to feel that not all the changes were for the better. He said he felt more restricted in managing his clients' wealth following corporate changes post-merger.

"We wanted to find a company that was much more independent," he said.

(Reporting By Ashley Lau; Editing by Walden Siew, Jennifer Merritt, Chelsea Emery and Tim Dobbyn)

((Ashley.Lau@thomsonreuters.com)(+1 646 223 5964)(Reuters Messaging: ashley.lau.reuters.com@reuters.net)(Twitter @ReutersMoves))