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Fidelity says bigger broker teams going independent

NEW YORK (Reuters) - Fidelity Investments on Thursday said while breakaway brokers may be shrinking in numbers this year, they are much bigger in terms of the client assets they manage.

In the first nine months of this year, nearly 120 brokers or teams with a combined $8 billion in assets, left big brokerages to form independent firms that use Fidelity for custody services. In terms of assets per breakaway, that is a 26 percent increase.

“The movement of these large breakaway teams is being fueled by the creation of new independent business models,” said Michael Durbin, president of the Fidelity business that caters to registered investment advisers (RIAs).

Among Fidelity’s class of 2010, 45 percent launched their own RIA firms while 55 percent joined either an independent broker dealer or existing RIA. Five of the teams each managed more than $500 million in assets.

In one example, a team of former Morgan Stanley Smith Barney brokers on Thursday announced the launch of Sapient Private Wealth Management. The Eugene, Oregon, team created the new firm with help from RIA consolidator Focus Financial Partners.

The Sapient team led by Greg Erwin, Alan Rexius and King Martin previously managed more than $500 million for clients in the Pacific Northwest. The new firm plans to expand throughout the region by pursuing new clients, acquisitions and recruits.

The movement of brokers away from the largest U.S. brokerages peaked in the wake of the 2008 financial crisis, as more than 1,500 advisers abandoned hard-hit Wall Street firms to join independent brokers and RIAs in search of higher payouts, fewer client conflicts and stability.

The trend was loudly trumpeted by Fidelity, Charles Schwab Corp SCHW.N and other firms that provide custody and other services to independents.

Executives at Bank of America's BAC.N Merrill Lynch and Morgan Stanley MS.N earlier this year played down the trend as immaterial to their dominant share of the overall market and observed that the pace of defections had slowed.

Fidelity’s Durbin, though, contends that increasingly larger broker teams are considering moves and weighing a growing number of breakaway options: from launching an RIA or brokerage firm to joining forces with an established RIA or brokerage through match-making services.

The number of private investors and consolidators like Focus Financial and Hightower Advisors, poised to invest in RIA’s, is also growing.

In contrast to the 2009 wave and worries about the survival of the big banks, breakaways now are driven by the availability of investment capital, by the search for ways to monetize a successful practice, and by the improvement in technology accessible to independent firms.

Durbin contends that as larger teams depart from the big firms, it lends more credibility to the trend and encourages more brokers to consider making a move.

“Clearly we’re moving past the fear-driven, crisis phase of the breakaway movement,” Durbin said in an interview. “The next phase is here. Brokers are being thoughtful, more strategic about their options.”

Reporting by Joseph A. Giannone; Editing by Bernard Orr

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