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Wealth advisers flee big banks for smaller firms

Breakaways are occurring more frequently as advisers hope to exert greater control and keep a larger share of the revenue

Wealth advisers from large banks such as UBS and Bank of America have joined boutique firms like Dynasty Financial Partners and Rockefeller Capital Management.

New York

ANOTHER day, another team of wealth advisers leaving a Wall Street bank.

Four UBS Group AG private bankers overseeing US$530 million in client assets are the latest to strike out on their own, creating a Portland, Maine-based firm called Great Diamond Partners, according to a statement Monday. Last week, five Bank of America Corp advisers in Atlanta overseeing US$450 million in client assets departed, while a US$6 billion Texas team split from Morgan Stanley in April.

Breakaways are occurring more frequently as advisers hoping to exert greater control and keep a larger share of the revenue bolt big banks to create boutique firms. Smoothing the way are technology ventures such as Dynasty Financial Partners, created by former Citigroup Inc executives, which provide record-keeping, trading platforms and product offerings once available only at the largest firms.

"Large complex teams require large complex solutions," said Tim Oden, senior managing director of adviser services at Charles Schwab Corp. "Before the ecosystem existed, they had no choice, but now they have a choice."

Other wealth-advisory firms including Rockefeller Capital Management have also been siphoning talent. The company, run by former Morgan Stanley executive Greg Fleming, has lured teams from Bank of America and UBS in recent months as part of an expansion strategy.

A 10-year bull market and an increase in the number of wealthy families across the US have helped fuel the movement. Most of the recent breakaway teams have yet to be tested by a slowing economy or serious market correction, but Great Diamond founding partner Steven Tenney said some of the risks have been mitigated by improvements in technology.

"The technological advances are independent of the economy and market cycles," said Mr Tenney, who spent 26 years at UBS. "The best way to capitalise on that technology is by being an independent firm." UBS spokesman Peter Stack declined to comment.

Great Diamond, as well as the advisers departing Bank of America and Morgan Stanley over the past few weeks, partnered Dynasty to set up independent companies. Breakaway teams managing a total of about US$25 billion now use Dynasty's platform, the New York-based firm said.

"Somebody who has a business of that size isn't going to take a significant risk and hope it works out," Dynasty chief executive officer Shirl Penney said in an interview. "A lot of those teams wanted the road to independence to be a little more well-travelled."

For a company the size of Bank of America, which has seen three teams overseeing a total of about US$3.9 billion depart for Dynasty in the past 10 months, the losses are relatively small. The Charlotte, North Carolina-based bank's wealth-management businesses have US$2.8 trillion in client assets.

"Attrition rates among experienced advisers remain near historic lows, at approximately 3 per cent per year," Bank of America spokesman Matt Card said in a statement, adding the firm "offers an unrivalled platform and the full range of capabilities advisers need today to serve clients".

Still, the migration from big banks is expected to continue as improvements in technology and the growth of turnkey companies like Dynasty, Chicago-based HighTower Advisors and Focus Financial Partners make it easier for teams to set up their own businesses. Independent and hybrid investment advisers will likely make up 28 per cent of the market by 2020, compared with 25 per cent in 2015, according to analytics firm Cerulli Associates.

How the breakaway teams fare financially is based largely on whether or not their clients follow, said Alan Johnson, managing director of compensation consultant Johnson Associates. Advisers who left big firms to start boutiques retained about 87 per cent of their client assets on average, a Schwab survey found.

"If you think you can keep all of your clients, then of course you're going to make more money," Mr Johnson said. "The real question is how many clients are you going to lose?" Banks have become more aggressive in trying to retain wealth advisers, making hard-to-refuse offers to top producers, he added.

"It goes on all the time," he said, but added: "You have hundreds of these people and you can't cut deals for everybody." Jeff Erdmann, who leads a team for Bank of America's Merrill Lynch wealth-management business, said that he's never considered going independent.

"If you're completely on your own, you're trying to reinvent an incredible machine," said Mr Erdmann, who is based in Greenwich, Connecticut. "Having the association with a large global bank gives security to families." Mr Penney said independent advisers on Dynasty's platform typically see 25 per cent to 40 per cent more in average cash flow than at big banks. "They own all the equity in the business, so they own all the upside as well," he said.

Mr Penney declined to say how many other teams are poised to jump.

"We're going to remain busy," he said. "We're going to have a hot summer." BLOOMBERG