U.S. brokers find it hard to break ties that bind

NEW YORK (Reuters) - Anyone expecting the financial crisis to spark an explosion in newly independent investment advisers -- "breakaway brokers" abandoning troubled banks and brokerages -- might be disappointed.

The financial industry's quarterly reports this month suggest that although some brokers are ready to go it alone, most are not contemplating using their employers' problems as an excuse for a change.

Morgan Stanley's (MS.N) massive brokerage joint venture with Citigroup Inc (C.N), for example, is not hemorrhaging advisers to the extent that some had anticipated.

Colm Kelleher, Morgan Stanley's chief financial officer, said on a conference call Wednesday that there are "no issues with retention" of employees at Morgan Stanley Smith Barney, as the venture is known.

That's bad news for companies such as Charles Schwab Corp SCHW.O and TD Ameritrade Holdings Corp AMTD.O, which are trying to lure brokers with their custodial services.

Indeed, Morgan Stanley said the new brokerage has 18,444 advisers, down marginally from the "over 18,500" there on June 1 when the venture was consummated.

There was also little talk of retention problems at Wells Fargo & Co (WFC.N), which took over the parent of Wachovia Securities at year end, or at Bank of America Corp (BAC.N), which bought Merrill Lynch & Co on January 1, and also reported results this month.

"Judging from the second-quarter results, it hasn't been a mass exodus," said Alois Pirker, research director specializing in wealth management at advisory firm Aite Group. "Surprisingly enough, it seems very stable. I would have expected more attrition at this point."

Merrill Lynch, Morgan Stanley and Smith Barney had a total of 40,000 advisers at the beginning of last year. By the end of March this year, they had shed about 6,000 advisers, according to Aite, which compiled numbers from company filings.

Indeed, the crisis that claimed Bear Sterns and humbled Merrill Lynch and Lehman Brothers dislodged advisers in all directions, including into the open arms of discount brokers.

But the discounters have recently been cautious over the prospect of a windfall of breakaway brokers. Industry leader Schwab told Reuters last week it managed to attract 74 newly independent investment advisers in the first half of the year.

"We definitely continue to see lots of interest from the adviser community for people setting up their own shops," Chief Financial Officer Joe Martinetto said in an interview. "That will build over time."

Fidelity Investments, the mutual fund specialist, and Bank of New York Mellon Corp's (BK.N) Pershing unit are also big homes for registered investment advisers.

Breakaways from the top wirehouses also tend to join independent broker-dealers such as Edward Jones & Co and Raymond James Financial Inc (RJF.N). But the trend is also slowing this year at these firms, according to Aite.

The breakaways face myriad technical hurdles, as well as the prospect that clients will not necessarily follow them.

With the financial crisis still shaking Wall Street, some observers say prospective breakaways are waiting for more stability in markets and the economy before they act.

It is a "nascent trend," Mark Tibergien, managing director of Pershing Advisor Solutions, told a panel discussion last month. "This is an opportunity for everyone in financial services to reposition themselves. It has been a humbling experience for advisers."

(Reporting by Jonathan Spicer; Editing by Tim Dobbyn)