For 14 years, Jason DiLauro was the epitome of the Merrill Lynch financial adviser.
Based in its Akron, Ohio, office, he was a big producer and even ran coaching sessions for recruits at its center in Princeton, N.J.
"I loved it there," DiLauro said. "I never ever imagined leaving there. I kind of considered myself the poster child for the firm. The whole 'Total Merrill.' "
Nearly three months ago, however, DiLauro picked up and left. He set himself up as an independent adviser through Raymond James Financial Services four miles from his previous office. He abandoned the wire house world and isn't looking back.
If he was once the poster child for Merrill, he is now an exemple of the new independent adviser. With the wire houses buckling in the heat of the economic meltdown and ownership of what were once the mightiest brokerages changing hands, more and more wire house advisers are giving independent firms a careful look.
Of the roughly 15,000 advisers leaving national full-service brokerage firms annually, 4,275 choose a form of independence, according to Charles Schwab & Co.
The traditional wire house business has seen fast and furious transformation in recent months. Outrage over perceived Wall Street excesses coupled with a trillion-dollar loss in American wealth has only chipped away at wire houses' already tarnished images.
Bank of America Corp. bought Merrill Lynch last winter in large part to grab its 14,000 brokers. Morgan Stanley, one of the healthier wire houses, entered into a joint venture with Smith Barney, the brokerage arm of Citigroup Inc. The deal gave Morgan 51% ownership of the joint venture and Citigroup 49%, with Morgan getting the right to increase its stake to 100% over the next five years. And Wells Fargo & Co. bought Wachovia Securities, creating a 16,000 adviser force.
Only UBS AG, with its UBS Wealth Management Americas unit, has not been involved in a deal. But it suffered from the global economic malaise. In addition its much-publicized legal battle with the Internal Revenue Service over divulging the names of U.S. clients who may have evaded taxes through offshore accounts has not helped its reputation.
All these events have interacted to stimulate recruiting by independent firms. "We're seeing a lot more inquiries and more due diligence trips," said Scott Carlson, the senior vice president in charge of sales and distribution at Woodbury Financial Services, the independent broker-dealer arm of Hartford Life. From Jan. 1 through mid-June, Woodbury hired 130 registered representatives. The majority, 82%, came from other independent firms. But another 11 reps came from wire houses.
"The wire house people, in particular, are looking for comparisons," Carlson said. He added, however, "They are not as quick to move as an independent broker-dealer representative or a captive rep." Carlson, who has been at the Woodbury, Minn., firm for 16 years, explained that wire house advisers are more cautious in the face of a shift's culture shock. "They really have to analyze the costs and benefits," he said.
The burgeoning movement among advisers was apparent, too, to Bill Van Law, a senior vice president and the director of business development at Raymond James. "We were up 45% [in staffing] last year over 2007," he said, and he foresaw an even stronger 2009. "This year we have people being more active," he said. "With all the stuff going on in the industry, it has created an incredible amount of dissatisfaction."
He said, recruiting by his firm grew 134% between last Oct. 1 and May 31. The number recruited from wire houses was up 373% during the period, he said. Dissatisfaction spelled opportunity for firms like Raymond James. "We recognized in the fall that things were changing," Van Law said.
DiLauro, who switched to Raymond James, began thinking about leaving Merrill once it was taken over by B of A. "It wasn't the same house as it was before," he said.
He said he believed in the "Total Merrill" platform. "To Merrill's credit, the way they hired us and trained us and the way it was survival of the fittest in the first few years, you have that mentality that you always have to grow your business," he said. Merrill helped sculpt him into a success. "You have it embedded into you," he said, and he expected to stay there his entire career.
The banking philosophy was too different from the brokerage perspective, DiLauro said. And in December, he decided to go.
Not every adviser who leaves a wire house is comfortable going fully independent. Some are going to the employee units of smaller brokerage firms, and others to registered investment adviser firms.
Just more than a year ago, Rick Sanchez and Ed Sullivan, former managing directors at Morgan Stanley Global Wealth Management Group, founded Seacrest Wealth Management LLC in Purchase, N.Y.
Using the Charles Schwab RIA platform, Seacrest hires advisers from the wire houses and similar firms, Sullivan said. It has 15 advisers in four offices and plans to have seven offices by yearend. Seacrest is recruiting $300,000 to $500,000 producers with 10 to 15 years of experience. It offers a hybrid platform in order to accommodate both commission and fee-based business.
"I just don't think the lure of the major firms is what it used to be," said Sullivan, a 25-year veteran of Morgan Stanley, whose Dean Witter predecessor firm he joined in 1981. In his tenure there, he managed offices for the firm on Long Island, N.Y., and in Vermont. He also managed a Boston office complex and was a regional manager for six years. In his last five years with Morgan, he was a regional director overseeing New England, New York state and Pennsylvania.
Sullivan and his team spent hundreds of hours discussing the type of firm they wanted to have. "I think it's just great having your own operation that has a very bright future,", he said. "I get a lot of self-satisfaction."
