A $1.5B wirehouse team considered independence but jumped to Merrill
Among advisors changing firms, the prevailing trend is away from Wall Street mainstays and toward greater independence — but that path is not for everyone.
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Case in point: Todd Hatfield, a Boulder, Colorado-based advisor who joined Merrill this month after 28 years at Morgan Stanley and its predecessor firm Smith Barney. Before their move, he and three other team members had been managing $1.5 billion in client assets.
Hatfield said in an interview Wednesday that he questioned the very notion of “independence.”
“The independent phrase is something that’s thrown out there, but the reality is no one is telling me what to do,” Hatfield said. “I just need a platform that’s extremely broad to cover my clients’ needs because that is what is important to me and drove this decision.”
The potential pitfalls of independence
Hatfield said he sat down for interviews with a range of firms that could have been destinations after his departure from Morgan Stanley. Some would have allowed him and his team to leave behind their status as direct employees, operate as independent contractors and keep a much larger proportion of the revenue they generated.
For many, that kind of switch would promise not only greater freedom but also profit margins larger than they could get working as employees. But Hatfield said all he could think about was the new burdens such a move would entail.
Particularly daunting was the array of tech systems he would need to choose from to replicate what he was leaving behind at Morgan Stanley.
“What do I know about data technology other than it’s highly important?” Hatfield said. “Or if I need a contact management system, or if I need data security and cybersecurity? That’s way outside of my understanding.”
Hatfield said he knows third-party providers would be happy to equip an independent practice with tech support. But without the sort of expertise that would help him choose among them, he was loath to select something simply by its price.
“When one is $500,000 and the other $300,000, and they both sound the same and they’re competing against each other again, what decision do you think 90% of advisors are going to make?” he said. “I never wanted to go down that path. I redlined the independent opportunities pretty quickly for that one reason.”
Why some advisors still choose another wirehouse
Although wirehouse-to-wirehouse moves like Hatfield’s remain common in wealth management, many advisors also leave Wall Street mainstays like Morgan Stanley or Merrill to join independent broker-dealers, registered investment advisors or other firms promising various types of support with fewer managerial constraints. An
But buried beneath all those trends is a tendency to stay with the same type of firm.
“While the RIA market is experiencing the most significant growth, many advisors making a switch remain within their current channel,” according to the report.
Rick Rummage, the CEO of the recruiting firm The Rummage Group, said wirehouse-to-wirehouse moves often result from a desire to stay in a comfortable setting while also working for a firm with a name that’s easy to recognize. Rummage said he has worked with many advisors who are reluctant to leave the wirehouse world, even though he has seen no evidence that clients are less willing to follow advisors to lesser-known independent broker-dealers or RIAs.
“The percentage of clients that follow you from a big name to a big name are pretty much in line with the percentage of clients that follow you from a big name to a new name,” Rummage said.
A big check wasn’t the deciding factor
Of course, a major consideration for advisors is the large transition check they often receive for moving to another wirehouse. Merrill has sought to revive its flagging recruiting efforts in recent years and is now offering “extremely large” upfront payments to advisors who join it from industry rivals, Rummage said.
These deals are typically set at three, four or even five times a team’s revenue production over the past 12 months. In Hatfield’s case, the payout on the $4.3 million his team generated in the year leading up to his departure from Morgan Stanley was likely substantial.
But advisors who accept such deals give up a lot, Rummage said, including the much higher profit margins they could secure by not having to share the large portion of revenue demanded by wirehouses and other wealth management employers.
Advisors, he said, can gain a good deal of independence by joining what he called “plug and play” firms. These are wealth managers specifically set up to provide most of the back-office services needed for their businesses while allowing them the profit margins common for independent contractors.
“Yet, there’s a good percentage of them — let’s just call it a third — that have absolutely no interest in independence whatsoever,” Rummage said. “They just like having everything done for them, and for that they’re willing to give up another 20 or 30 percentage points in profit.”
Yes, name recognition matters
Another reason advisors may want a big check for moving to a wirehouse is to lock in a significant payout ahead of retirement, Rummage said. But at age 53, Hatfield is not considering retiring in the near term.
He said he considered many firms’ transition packages but chose Merrill for reasons other than the transition deal it offered.
“Are they the highest? No. Are they the lowest? No. Are they fair? Very much so,” Hatfield said. “Otherwise, I wouldn’t have chosen them. But, again, there were so many other factors that I needed for my clients that were outside of my own economics.”
Chief among those factors was finding a firm that could deliver the breadth of services sought by his clients. Many want special help with trust and estate planning. Also appealing was Merrill’s status as a subsidiary under Bank of America, the second-largest U.S. bank measured by assets. Merrill often touts that connection as an advantage for advisors wishing to arrange loans and mortgages and provide banking services and products to clients.
Hatfield acknowledged the appeal of Merrill’s name. He said many of his clients are corporate executives.
“Brand recognition is very important if you’re from a Fortune 500 company,” Hatfield said. “I think that was very helpful when I just started saying, ‘Well, what does this name sound like to you?’ Bank of America and Merrill Lynch have wonderful brand recognition.”
