* Survey says most independent brokers weighing RIA status
* Schwab says breakaway broker movement still strong
* Independent brokers and insurance reps ripe candidates
By Philipp Gollner
SAN FRANCISCO, April 4 Independent brokers are
increasingly eager to become registered investment advisers but
are impeded by compliance concerns and time constraints,
according to a new survey from Charles Schwab Corp (SCHW.N).
Almost 86 percent of 157 brokers polled at independent
broker dealers and insurance firms deemed the RIA route an
attractive business model that reduces perceived conflicts of
interest and opens income-increasing opportunities.
Twelve percent found no appeal at all in becoming an RIA.
The survey, conducted in January among brokers with an
average age of 44 and 2009 income of $235,000, was the first
aimed by Schwab at independent brokers, a channel increasingly
ripe for conversion to RIA status. The number of transplanted
independent brokers moving to Schwab's RIA platform increased
by 45 percent in 2010 over 2009.
RIAs, which can range from one-person financial planning
firms to major money management companies, generally charge
fees based on a client's assets under management while brokers
are more likely to sell financial products on a commission
basis. RIAs also are subject to a fiduciary standard of care
that requires them to put a client's interest first. Brokers
have to ensure only that a product is suitable for a client.
In the days leading to the financial collapse of 2008,
firms such as Schwab that offer trading, advisory and business
services to RIAs anticipated a big migration to the RIA model.
But once the tumult began, many brokers feared making such an
abrupt change, and others have been locked in by offers of
deferred compensation from big wirehouse firms such as Merrill
Lynch and Morgan Stanley.
Schwab, Fidelity Investments and other RIA custodians are
now putting a greater focus on brokers who have already moved
toward independence by affiliating with firms such as LPL
Investment Holdings (LPLA.O) and the independent contractor
unit of Raymond James Financial (RJF.N). Their dalliance with
independence makes them more disposed to a pure RIA model while
new technology makes it easier for them to convert their
businesses, according to consultants.
"Even prior to the financial crisis that began in 2008, a
shift toward independence had begun and the dominance of the
wirehouse was waning," according to a 2009 report from
TowerGroup, a consulting firm in Needham, Massachusetts.
"Since the advent of the Internet and the increasing power of
personal computers, independent advisors have been able to
virtually replicate the technological capabilities of a
wirehouse at a reasonable price."
Some consultants, however, are skeptical of the bullish
attitudes captured in Schwab's survey.
Asking brokers whether they want to become independent and
keep all their revenue is akin to asking people if they want to
buy a new car, said John Furey, whose Advisor Growth Strategies
LLC in Phoenix offers consulting services to independent
advisers. Most say yes, but few actually go through with it.
"Making a move from one firm to another is tough enough,
but making a channel move is even more challenging," said
Furey, who formerly worked in Schwab's RIA conversion unit.
Also inhibiting such moves are fear of giving up a paycheck
and concerns about being able to run their own business.
"What the adviser has to be aware of are the operational
and administrative aspects," said Elizabeth Nesvold of Silver
Lane Advisors LLC, a New York-based investment banking boutique
that specializes in the wealth management sector. "They can get
buried under things that are foreign to them" and drift "from
the craft they love, which is sourcing and advising clients."
San Francisco-based Schwab is the biggest RIA custodian,
offering transitional and operational services to more than
6,000 clients. Its RIAs kept $655 billion with Schwab Advisor
Services at the end of 2010, up 11 percent from a year
Fidelity Investments, Schwab's principal competitor, has
also been waving the flag for the RIA model.
Brokers at full-service firm or independent contracting
shops are fueled by the drive for "freedom, the ability to
build their own brand...and to deliver unbiased advice," said
Michael Durbin, president of Fidelity Institutional Wealth
Custodians acknowledge that some of the recent drive to
independence was forced not so much by choice but by
broker-dealers squeezing out lower-producing brokers.
The RIA model, however, is beginning to draw interest from
a new breed of so-called "hybrid" brokers at a time when the
Securities and Exchange Commission is expected to better
harmonize the standards of care that brokers and RIAs must give
Forty-six percent of respondents in Schwab's independent
broker survey said they would continue collecting commissions
for selected products while focusing primarily on fee-based
compensation as RIAs.
The biggest impediments to shifting are obtaining legal and
compliance advice and finding the time to plan and execute the
switch, according to the survey. Other obstacles cited include
the lack of marketing and sales support, the need to hire and
retain quality partners, the challenge of finding functional
and affordable technology and concerns about attracting and
(Reporting by Philipp Gollner, editing by Jed Horowitz)