Opinion: Game of Firms

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Winter is coming. As wirehouses back out of the recruiting game in a tacit acknowledgment of the futility of prisoner-exchange hiring policies and as new breeds of super-regionals and independent brokers and advisors continue to develop, a new game is on.

Former regional players such as Stifel Nicolaus and Raymond James that are developing national profiles, and powerhouse independent broker-dealers such as LPL Financial, now have the opportunity of a lifetime amid regulatory and competitive chaos. But it’s unclear how persuasive they can be in convincing top-tier brokers they can receive the same support that wirehouses provide, even as the wires experiment with new programs to recruit middle-tier and mid-career advisors.

The most attractive pawns in the Game of Firms still belong to the big firms but the chessboard is changing. The Wires need to recognize that what might be called the “new nationals” are a direct threat whose recruiting power can match their own. Independent advisors, meanwhile, with the help of platform providers and transition-support lenders such as Dynasty Financial, Hightower and Focus Financial, can build organically without big recruiting overhead, and make up the only segment of our industry that’s actually growing in headcount.

There are many breeds of independent firms, new nationals and support systems, of course, and their challenge is to fit the solutions they are offering to the varying tastes of the advisors they are trying to capture. Stifel is betting on an acquisition and culture strategy, Raymond James has carved out multiple channels, including one for employees, another for independent contractors and a new one for high-net-worth brokers. LPL, the big Kahuna of independent broker-dealers, is betting on size, a captive registered investment adviser, and economies of scale to check its independent rivals and steal share from the traditional firms.

RIA custodians such as Schwab Advisor Services, Fidelity Institutional Wealth Services, Pershing Advisor Solutions, TD Ameritrade Institutional and Interactive Brokers, knowing that breakaway brokers need more than just a platform to hang their hats on, have spent heavily on advisor education models, transition financing and accounting, as well as compliance and customer management systems to grow their slices of the registered investment advisory and “hybrid” broker/advisor universe.

The battles are not just between the incumbent wirehouse powerhouses and the super-regionals and independents, of course, but among all the players.

What can the wires do? Barring the near-impossible task of reviving a broker-centric culture, the erstwhile powerhouses will need to focus on their still-considerable strengths: deep pockets to develop technology and synergies with their banking affiliates that don’t antagonize advisors.

By creating products and marketing approaches that satisfy the very wealthy clients that are increasingly their targets, by adding lending products to the still-core investment management menu and by emphasizing the investment banking and trading expertise that brokers can tap, the incumbent wirehouses still have big advantages.

The uneconomical tradition of writing big checks to attract brokers and, fingers crossed, customers, has clearly ended. With billions of dollars of forgivable loans pressuring their balance sheets and an aging workforce of advisors, the wires are under tremendous pressure to develop new value propositions for brokers and clients alike.

Now that the field is level, and the new national firms are able to recruit with similar firepower, and with the independent channel much more nimble and growing fast at their expense, the wires don’t have much time to pitch their value prop to potential recruits or their current advisors. Winter is coming. Wall Street will soon be covered in snow.

Tony Sirianni is the publisher and chief executive of AdvisorHub.

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