RBC says broker independence trend just begun

By Joseph A. Giannone

NEW YORK (BestGrowthStock) – The flight of U.S. financial advisers to independent firms has only just begun, and Royal Bank of Canada intends to lure its share of these break-away brokers.

RBC Wealth Management recruited more than 320 advisers in the past year, taking advantage of a wave of brokers departing brokerages wounded by the 2008 financial crisis and engaged in disruptive mergers.

RBC’s U.S. wealth management chief, John Taft. told Reuters the recruiting frenzy has subsided, so RBC will focus on attracting break-away brokers and their clients.

“The crisis-driven flight of talent has settled down,” Taft said in an interview. “In terms of the movement of wirehouse advisers to the independent channel, we think we’re at the beginning of that trend, not the end.”

More than 22,000 registered brokers moved from one broker-dealer to another last year, according to industry tracker Discovery Database. More than 8,000 movers came from the four largest “wirehouse” brokerages, and more than 1,000 of these moved to regional and independent firms.

Executives at the big brokerages last month assured analysts that the turmoil spawned by the 2008 financial crisis has eased. They also played down the independence trend as hype, insisting that most top producers were staying put.

Taft disagrees. RBC last fall agreed to buy JPMorgan Chase & Co’s registered investment adviser services business, which provides trade and other support to independent firms, to get in front of what Taft sees a continuing wave of departures.

“Some of the very best advisers in the industry moved from their wirehouse platform to our platform. Anything you hear about those being lower-end brokers is, in our experience, not accurate,” he said. “The quality of advisers who were moving was extraordinary.”

RBC is following in the footsteps of Charles Schwab, TD Ameritrade, Raymond James Financial and others catering to advisers that establish their own firms but want trading, clearing and technology offerings of a big brokerage. RBC and its rivals benefit from commissions and fees generated by these affiliated advisers.

Royal Bank built the sixth-largest U.S. brokerage over the past decade, rolling up regional firms like Sutro & Co, Tucker Anthony and Dain Rauscher. The brokerage, which describes itself as “boutique with a national footprint,” has 2,200 advisers serving clients with $160 billion in assets in 42 states.

Last year and 2008 “were the two best recruiting years we ever had, by several orders of magnitude,” Taft said, fueled by “issues at the large wirehouse firms that spooked their financial consultants, spooked their clients and prompted them to look for more stable and secure platforms.”

Taft says RBC benefits from its links to Royal Bank, which avoided the mistakes that hobbled U.S. rivals, boasts a triple-A credit rating, and has nearly twice the market value of Morgan Stanley.

“If the firm where your assets are custodied lost billions of dollars, or was in danger of going out of business, or is run by people under indictment for tax fraud, that doesn’t make you as a client feel very good,” Taft said.

Wealth managers are in the business of selling peace of mind, security, a sense of well being, he added.

Beyond recruiting and its independent adviser plans, RBC has also been a steady acquirer of small regional firms. Last year it bought Ferris Baker Watts of Washington, D.C., and New Jersey-based JB Hanaurer, adding 400 advisers.

RBC recently completed integration of its various regional businesses, finally creating one national platform. Taft said takeovers are not a top priority at the moment.

“Right now, our focus is on working with the advisers already on our platform. That doesn’t mean we’re not recruiting or that we are not interested in an acquisition, but it’s not the focus,” Taft said.


(Reporting by Joseph A. Giannone; editing by John Wallace)

RBC says broker independence trend just begun