* FiNet for independent brokers testing appeal to investment
* Firm hopes to have first "hybrid" adviser-broker client by
* 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
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
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.