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Wealth Management Goes Independent: Spotting the Breakaway Brokers

Wealth Management Goes Independent: Spotting the Breakaway Brokers

One in four employee brokers are considering going independent, which amounts to 16,300 brokers at the five largest retail brokerage firms alone.
By Alois Pirker

Boston, MA, October 14, 2008 – A new report from Aite Group, LLC examines a problem many retail brokerage firms are experiencing or may encounter: losing brokers who chose to breakaway from their firm. The report, based on a survey of 69 U.S.-based employee brokers, provides insight into which employees are most likely to go independent, categorizing them by assets under management, total revenue, percentage of recurring-fee income, financial planning, and their product preferences, among others.

The difficult times many retail brokerage firms are going through, particularly since the beginning of the credit crisis, is putting a great deal of strain on the client/broker relationship, making it difficult for brokers to continue to grow their books of business. Aite Group's research finds that more than one in four employee brokers are currently considering going independent. Among the five leading full-service retail brokerage firms alone (Merrill Lynch, Citi/Smith Barney, Wachovia Securities, Morgan Stanley, and UBS), this would roughly add up to a staggering 16,300 potential breakaway brokers. Should all of these brokers decide to leave, these firms could lose an estimated US$2 trillion in client assets and US$7.5 billion in revenues. In times of large quarterly losses and lack of sufficient capital, a larger exodus of employee brokers would mean yet another severe blow to these firms.

"Retail brokerage firms are risking a sharp increase in the number of breakaway brokers," says Alois Pirker, senior analyst with Aite Group and author of this report. "Given that employee brokers' compensation largely depends on their underlying books of business, they have a great interest in protecting and developing client relationships. Unless firms manage to convince their brokers that their situation will stabilize very soon, brokers might come to the conclusion that their employer no longer provides the best environment in which to grow their business."

This 28-page Impact Report contains 24 figures. Clients of Aite Group's  Wealth Management service can download the report.