KBK Wealth Management plans to increase its assets under management over 150% in the next 18 months by recruiting midtier brokers.
Alan Brachfeld, the New York investment manager's chief executive, said in an interview last week that he plans to add three advisers quarterly from this quarter through the summer of next year. He expects each adviser to bring a book of business with $20 million to $120 million of assets under management, and he said his company, which currently has $400 million, will be able to pass the $1 billion mark by next summer.
Brachfeld said he started recruiting advisers in October, though the pipeline really started to heat up recently as advisers at large brokerages began receiving smaller bonuses — or in some cases, none at all — for last year.
"These midlevel brokers are being left out in the cold with respect to bonuses," he said. "Bonuses have become a touchy subject for banks and the public, and now advisers who perhaps once enjoyed the security of a larger firm are more willing to consider working for an independent advisory firm."
Wells Fargo & Co. said last week it would not offer bonuses to retain the brokers it got from its acquisition of Wachovia Securities.
Analysts said the decrease in bonuses is presenting independent advisory firms an opportunity to recruit disgruntled brokers. Geoffrey Bobroff, an analyst with Bobroff Consulting in East Greenwich, R.I., said many advisers who worked for wire houses are dissatisfied, because they found themselves swept into the bank channel through recent acquisitions.
"Brokers and advisers have worked for wire houses for years, because they enjoyed the security, but I think now they don't trust the new parent," he said. "I think they are looking for alternatives."
Analysts said KBK, which has been in New York for 20 years, will have a difficult time competing for advisers, because there are still a lot of large wealth managers in the region offering large compensation packages. Brachfeld said KBK is attractive because it offers the brokers it hires an increase of 40% to 50% in annual compensation.
"We know top-tier producers are still being retained with large bonuses, and we cannot match that, but midtier brokers are being forgotten," he said. "These people can earn back with us what they would have made from a larger broker in a year or two."
Bobroff said there is movement in the market among advisers. "People are going to places for a lot of different reasons now. Some are looking for a breath of fresh air or more freedom, but whatever the reason, the opportunities are there to attract talent."
Analysts say independent advisory firms have to be cautious and conduct proper due diligence when it comes to hiring advisers that bring in a book of business.
"We've just gone through one of the toughest economic environments in recent history, and we may not be fully through it," Bobroff said. "Companies have to evaluate what kind of exposure might still exist. You have to scour these books of business. You don't want to be the next deep pocket."
KBK has attracted 35 new clients and nearly $45 million of assets since September.
Brachfeld said beyond next summer, KBK plans to add advisers as it grows. He also said it is marketing aggressively. "We want to be strategic and continue to grow in a comfortable way," he said. "We have built a strong foundation, and to grow this business, we have to do it in a healthy way, but once things start happening we will be able to grow quickly."
Brachfeld said this strategy was not something KBK planned on six months ago, but it wants to hire while there are talented people who are not interested in working for a bank. "A year ago people probably wouldn't even consider leaving the security of Merrill Lynch for an independent advisory firm, but a lot has changed in 12 months," he said. "Today a lot of people aren't very happy, and they are willing to explore their options."