News & Press Releases

Declaration of Independence

Dan Beighley, Orange County Business Journal

October 12, 2009

Financial Advisers Leaving, Laid Off from Wall Street Firms Joining Independent Companies

Many financial advisers are leaving the madness of Wall Street firms to set out on their own.

As the Street has been hammered, many big-named companies have let go of advisers. Others have left on their own to escape the negative attention that ballooned after last fall's financial meltdown and the discovery of Ponzi schemes.

This week's Business Journal list estimates nearly 200 licensed advisers were let go by the biggest companies here during the past year.

Some of the prominent Wall Street names here, including Merrill Lynch—which now is part of Bank of America Corp.—Morgan Stanley Smith Barney and UBS Financial Services Inc., all posted lower registered representative numbers.

"I know a lot of advisers who went independent," said Dennis McMurray, an independent financial adviser in Rancho Santa Margarita who formerly worked for a major Wall Street firm he didn’t name.

McMurray left his previous post last November as the financial crisis was flattening his company.

It didn't take him long before he set up shop with LPL Financial, a Boston-based company that works with independents.

"Convincing customers to follow wasn't hard," he said. "A lot were nervous about my old firm. It was never about the name on the door—it was always about their relationship with me."

Wall Street vs. Independents

Rick Keller of First Foundation Advisors in Irvine, an independent financial seller, says he sees the independent streak continuing.

Many people were once attracted to Wall Street names for their perceived safety and security, but they no longer feel that way, he said.

Last year, First Foundation hired Tom Giddings as an adviser after he left the Newport Beach office of New York-based Lehman Brothers Holdings Inc. Lehman Brothers has since filed for Chapter 11 bankruptcy.

First Foundation has a total of 22 advisers and manages more than $1.2 billion. It also has First Foundation Bank in Irvine with $170 million in assets.

Charlotte, N.C.-based Bank of America Merrill Lynch, which shed about 25 financial advisers in the past year, disagrees that independents are gaining in popularity.

Company research published this year noted that "high-net worth individuals will use 8% fewer independent advisers in 2009 and beyond than what they did in 2008."

Recent investment scandals—the most notable resulting in Bernie Madoff's conviction—have shaken a lot of confidence in independent advisers, it said.

Bank of America says it's recently hired hundreds of advisers nationwide, some of which were local.

San Francisco-based Wells Fargo & Co. has similar feelings. While not a traditional Wall Street company, it's one of the largest banks in the country and has a lot of name recognition.

"Clients have expressed to me they only want to work with top quality firms," said Michael Villanueva, Wells Fargo regional brokerage manager.

New York-based JPMorgan Chase & Co. also says it's enjoying a reputation for being a large financial company that's healthy.

"We came out of this in great shape, and we have benefited from it," said Don Weigandt, a managing director with its wealth advisory unity in Los Angeles.

Long-time independents, such as Loreen Gilbert, president of Irvine-based Wealth-Wise Financial Services, say the crisis on Wall Street was a boon for new customers.

"Eighty percent of people looking for a new adviser are going independent," she said. "We've been adding new clients from New York firms every month."

Fees

Her chief reason for starting working with an independent company more than a decade ago was to keep most of the sales fees rather than sharing them with a firm.

Wall Street firms may take 20% to 30% of the sales charges, whereas as an independent you can keep 90%, Gilbert said.

"There used to be a feeling that the only reason independents have clients is because of Wall Street," she said. "But that's going away. The old model is broken."

Many advisers also are increasingly forming teams to share office expenses as independents. But most agree that to successfully leave a Wall Street firm and become an independent, an adviser has to have enough clients to take with him or her to be profitable.

Many of those laid off from Wall Street firms were under-performers, often with less than five years of experience, according to McMurray.

Since becoming independent, McMurray says it was the best decision he's made in his career.

"You go from an employee mindset to an employer one," he said.

He also says access to independent research through LPL from companies such as Chicago-based Morningstar Inc. and New York's Standard & Poor's has helped expand his view on the business.

"When you work for a firm, you're limited to the company's view on things," he said.

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