* FiNet for independent brokers testing appeal to investment advisers
* Firm hopes to have first "hybrid" adviser-broker client by summer
* Effort reflects growth of fee-based investment managers for the wealthy
By Jed Horowitz
NEW YORK, Feb 4 Recognizing the growing allure of independence to brokers who manage money for wealthy individual investors, Wells Fargo Advisors Financial Network is setting up a new business to attract "hybrid" advisers.
The embryonic program, which has not been publicly announced, will provide back-office, trading, regulatory and other business-management services to independent advisers who manage money for a fee but want to collect commissions from past or future sales of annuities, mutual funds and similar products.
"We don't have a big clamor for this and are having success in the absence of a hybrid option, but we want to see if this could lead to more," Kent Christian, president of the Wells Fargo & Co brokerage unit known as FiNet, told Reuters in an interview on Monday.
Most registered investment advisers (RIAs) give up their securities license to collect commissions, a practice they claim helps them avoid sales-oriented conflicts of interest. Instead, RIAs generally charge a fee that is a percentage of client assets under management.
Competitors to FiNet for hybrid RIAs include LPL Financial Holdings, Bank of New York Mellon Corp's Pershing and low-cost brokers such as Charles Schwab Corp, which have business channels for traditional RIAs, too.
FiNet is vying with Schwab to attract its first hybrid candidate, Christian said.
FiNet provides financial products and services to so-called independent brokers - many of whom are insurance agents and former brokers at big companies such as Morgan Stanley and Bank of America Corp's Merrill Lynch. While brokers who accept fees and commissions are far more numerous than independent fee-based advisers, the RIA business is the fastest-growing new sector within wealth management.
Christian, who took the top FiNet post last summer after running Wells Fargo Advisors' product group, said expansion into the hybrid adviser market will be gradual. FiNet aims to have one to three clients by mid-2013, and will then review the business to see if it should become more aggressive.
Wells Fargo employs about 14,200 brokers in its branches and brokerage offices, and services about 1,170 other advisers who are not direct employees through FiNet.
Independent brokers can retain more than 90 percent of the revenue they produce, compared with about 50 percent for top advisers who work directly for a broker-dealer. However, independent advisers pay for much of their overhead.
RIAs run the gamut from small firms preparing financial plans for individuals to multibillion-dollar money-management companies. FiNet will focus on relatively small advisers who seek to invest their clients' assets.
FiNet also will restrict its hybrid advisers to Wells' in-house First Clearing LLC unit to hold their clients' assets and provide back-office services. Companies such as Schwab, Fidelity Investments and TD Ameritrade Holding Corp with large RIA custody businesses do not require exclusive service arrangements with advisers, and LPL has lifted that requirement.
As part of Wells, the fourth-largest U.S. bank company, FiNet generally has a wider range of "value-added" services than many RIA custodians, Christian said.
RECRUITING FROM COMPETITORS
FiNet attracted 152 independent brokers in 67 teams in 2012, the second-best recruiting year in its 11-year history. About half came from large competitors such as Morgan Stanley, UBS AG's UBS Wealth Management Americas and Merrill Lynch, according to Christian, with Morgan Stanley the largest source. Edward Jones, a firm with hundreds of one- and two-person offices, also was ripe grounds for recruitment, he said.
Jones, like Wells Fargo Advisors, has its headquarters in St. Louis.
Wells Fargo does not break out FiNet's results, but profit margins of the independent and employee-owned channels are similar, with the direct channel doing slightly better during bull markets and the independent unit prospering in bear markets, Christian said.
FiNet ended 2012 with $63.4 billion of assets in its clients' accounts, up 20 percent from a year earlier. Its brokers produced average revenue of about $535,000 in 2012, above the average in the direct Wells channel, he said.