Pershing escalates pitch for ‘breakaway brokers’

Pershing LLC of Jersey City, N.J., the securities clearing and RIA custody affiliate of The Bank of New York Mellon Corp., has set up a website and suite of tools for stockbrokers who are considering shifting from large broker-dealers to other business models.

Like several other custodians and suppliers who earn fees from providing record-keeping services and investment products to independent advisers, Pershing is aiming its “Advisor in Transition” practice- management program at disgruntled wirehouse brokers exploring new channels, ranging from joining smaller broker-dealers to setting up or joining independent registered investment advisory firm or “hybrids” that offer both commission-based brokerage and fee-based advisory services.

The program is being launched as suppliers of financial services products, such as mutual fund companies, clearing firms and custodians, are expecting a seismic shift over the next few years in brokers leaving such reputation-scarred giants as Merrill Lynch & Co. Inc. and Morgan Stanley, both of New York, and Wachovia Securities LLC in St. Louis.

“A lot of people are contemplating it now because of reduced levels of confidence [from clients] in the parent firm,” said Mark Tibergien, chief executive of Pershing’s advisor solutions unit for RIAs.

He is a former consultant who is trying to compete with larger rivals such as Charles Schwab & Co. of San Francisco, Fidelity Investments of Boston and TD Ameritrade of Omaha by focusing potential and existing RIAs on best practices for running small businesses.

Mr. Tibergien said Pershing’s offering is aimed at helping brokers systematically think through their alternatives and resolve the numerous business challenges they present.

Like other custody firms, Pershing has developed an online business model evaluator as well as a financial modality tool generating profit-and-loss and cash flow projections.

It also is offering what it says is “confidential access” to compliance, benefits, financing and other specialists.

Although the big-brokerage model has been under strain since the collapse of such powerhouse brokerage firms as New York’s The Bear Stearns Cos. Inc. and Lehman Brothers Holdings last summer and early fall, the number of brokers rushing to independent channels to date has been moderate.

That’s because the unprecedented market volatility and uncertainties about the length of the recession have made them more tentative about the already challenging issues of setting up new practices and asking clients to follow them, several advisers said.

Inertia is the easiest course for many brokers to take, and they also have an array of choices to make in choosing alternative models.

Mr. Tibergien said he expects about one-third of so-called breakaway brokers over the next few years to join independent broker-dealers that let brokers keep more commission than wirehouses, and another third to join or create fee-based RIAs.

The final third aren’t really breakaway, he said, because they are likely to simply move from one wirehouse to another.

Pershing has been talking with about 100 teams of wirehouse brokers with close to $24 billion of client assets, a firm official said last week, while a Schwab executive said his firm has about 400 prospects with some $35 billion under management in its channels.

Conversion rates, however, have been slow.

Every big brokerage firm has 50 to100 teams of brokers with the right temperament and client franchise to go independent, said Rudy Adolf, chief executive of New York-based Focus Financial Partners LLC, which helps finance new RIA practice. However, it can take as long as six to 12 months for wirehouse veterans to make a decision about moving and another half year to set up the move.

Related Topics: Pershing Advisor Solutions