Human Collateral: Brokers Start Anew As Independent Advisors

For Daniel Bloom, the beginning of the end was the 2005 JPMorgan Chase takeover of Bank One. At the time he was a successful advisor with Bank One's Akron, Ohio branch, making $140,000 in his best year.

"Then the banking environment changed tremendously in the economic downturn," he says. Brokers' fees were slashed, Wall Street's reputation made clients suspicious, and the bank's new policies didn't help broker-client relationships. "They raised clients' fees and eliminated home equity lines. Soon review sessions were focused on complaints about how the banks were squeezing the little guy," Bloom says. "We're talking about a million-dollar portfolio of a longtime client and their business line is suddenly eliminated. That caused a lot of problems for me."

After two rounds of diminished compensation and no more referrals from the branch, he'd had enough. "We were doing all the heavy lifting we would do in running our own business, but giving all the fees to the branch - it became too much to bear," he says. "I had to be independent from that completely."

And in August Bloom joined tens of thousands of other Wall Street brokers and hung his shingle as an independent financial advisor.

Slashed Commissions and Client Dismay

The trend of financial advisors leaving major Wall Street institutions to go out on their own is significant and expected to grow. According to Boston research firm Cerulli and Associates, the number of independent financial advisors jumped 29 percent to 33,000 for the year ending in December, 2008, while the number of big-bank brokers dropped by 14 percent to 55,000. Cerulli estimates that by 2012, the gap between the percentage of individuals' money under management at Wall Street firms compared with independent advisors will shrink from 48 percent and 19 percent, respectively, to 41 percent and 23 percent.

This is the trend witnessed by Ryan Shanks, whose Longmeadow, Mass., firm Finetooth Consulting guides advisors in launching their own firms. Shanks says the slashed commissions paired with client dismay with Wall Street make for a marketplace ripe for small enterprise.

"When this market started going down, a lot of advisors hid under their desk and would not return client calls," Shanks says. "One of the greatest opportunities an advisor can have is to get in front of other advisors' clients."

When the financial crisis hit, Alex Locker saw his hefty commissions as a Merrill Lynch advisor dwindle. The bank's model shifted towards a focus on fewer, high net wealth clients, Locker says, and he stood by as accounts less than $50,000 were referred to a call center. That figure gradually grew to $250,000 and referral fees were done away with, he says. In May he quit Merrill and opened his own independent personal advisor firm near his suburban Chicago home, and he hasn't looked back.

"When I was employed my personal max for a payout was 33 percent," Locker says. "By going independent you give the custodian 10 percent to 20 percent, but you retain everything else. Then it comes down to managing cost." His new firm broke even a few months ago.

Better Life-Work Balance

Independents report being more satisfied with their work now that they are free to offer clients a wider variety of products and services. "Before I was under contractual obligation to make decisions based on the best interest of the bank," says Bloom. "Now as an independent advisor my best interests and my clients' best interests. That has been very freeing and a great experience for my clients."

Shanks says that many advisors thrive as small business owners because they can now relate to and better serve the many clients who are also entrepreneurs.

Another big advantage of working for oneself is the opportunity to create a better life-work balance. Locker enjoys a drastically reduced commute and more time with his wife and young son. Bloom recently enjoyed a mid-week getaway to a waterpark with his family and regular visits with a personal trainer -- all of which is good for business, he says.

"It's wonderful to not be enslaved to a schedule," Bloom says. "It gives you a sense of calm and clients appreciate that."

However, the risk and skills required by entrepreneurship are not for everyone, Locker says.

"There are many great sales people and many great advisors, but they're definitely not all great managers - you have to be good at all three, and handle the time demands of all three," he says. "The challenges of owning your own firm are different," Locker says. "The task is still very simple: go out and meet people and build business. But the way you go about doing it and the behind-the-scenes tasks are different challenges. Now I have a new appreciation for the staff and what it did at the wirehouse."