Advisor breakaway activity increased significantly in 2019, rising 22% to a record high of 655 breakaway deals in 2019, according to a study from Echelon Partners.
The biggest winner in the breakaway movement in 2019 was Wells Fargo Advisors Financial Network. FiNet is the independent brokerage channel of Wells Fargo Advisors. The rest of the top five winners are Stifel, Nicolaus & Company, Raymond James Financial Services, Raymond James & Associates and UBS Financial Services.
Wells Fargo Clearing Services, the traditional brokerage channel of Wells Fargo Advisors, was the biggest loser in the breakaway movement last year in terms of AUM lost to departing advisors. The rest of the top five losers are Morgan Stanley, Merrill Lynch, UBS Financial Services and First Republic.
Forgivable loans, aging advisors
Echelon attributes the heightened breakaway activity last year to the continued expiration of forgivable loans issued by wirehouses during the height of the 2008-2009 financial crisis to recruit and retain advisors at the time. An aging advisor population preparing for liquidity events is also cited as a reason for the rising breakaway trend.
Advisors are increasingly seeking independent platforms after the expiration of those loans, and 14% — the highest annual percentage so far — expired in 2019, according to Echelon.
Echelon expects the expiration rate of those forgivable loans to slow starting in 2020, making them less of a reason for advisors to jump ship in the coming years. But the company believes “ongoing economic uncertainty” may still drive more breakaway deals “as more advisors seek independence sooner rather than later.”
There were 535 breakaway deals in 2018 — a previous record — and the deals have been increasing since 2017, according to Echelon.
Echelon says fears among advisors at wirehouses that left the Protocol for Broker Recruiting that they would be embroiled in litigation “largely dissipated” over the past two years with “several successful large breakaways that set a powerful precedent for advisors considering a move.”
The broker protocol was created in 2004 to help cut the number of lawsuits and arbitration cases filed by broker-dealers because of advisors changing firms.
The pact lets registered representatives who move from one firm to another — as long as both firms are signatories to the broker protocol — take the following account information: client name, address, phone number, email address and account title of the clients they serviced while at the firm — and nothing more.
The pact also lets registered representatives who comply with the agreement solicit customers they serviced while at their former firms — but only after they have joined their new firms.
Morgan Stanley and UBS Financial Services are among the wirehouses that exited the broker protocol, withdrawing in 2017.
Echelon Partners is a Los Angeles-based investment bank and consulting firm focused exclusively on the wealth and investment management industries.