In a move that risks a backlash from within, Ameriprise opens the door wide for bigger wirehouse brokers

Ameriprise Financial, long known as a home for younger and trainee advisors, has begun landing some larger wirehouse breakaway brokers as a result of a concerted effort and shift of strategy.

The company is offering brokers who want to start in the franchise channel a payout as high as 91%, financing to expand their practices, and the flexibility to bend some of the rules that have long given the Ameriprise franchise system a reputation for being a rigid business model.

“Technology and a payout are not enough,” said Manish Dave, senior director, and vice president of business development for the advice and wealth management segment of Ameriprise. “We can be a strategic partner.”

The company’s strategy seems to be beginning to pay off. Last year, the company recruited 550 experienced advisors, up from fewer than 100 in 2007, according to the company’s financial report.

Though the majority were smaller advisors, about 1/3 went to the company’s franchise channel, where advisors set up independent businesses and have the choice of whether to brand themselves as Ameriprise advisors or not. There are about 6,000 franchises in the 50 states. Among the larger teams landing at Ameriprise were a Smith Barney breakaway group [How Ameriprise used its franchise system to snare a Smith Barney breakaway and the 19-member team of Pete Butler, which has two offices in Ohio and Pennsylvania, and came from John Hancock.

What’s different now

Of course, custodians like Schwab and Fidelity routinely land brokers with $250 million or more, or larger; but the idea that Ameriprise can attract teams with more than five or six partners is a departure from what has long been its sweet spot: wirehouse advisors who didn’t really fit into the wirehouse culture. In the past, the company has said it was targeting advisors with $30-$40 million in AUM.

The company’s strategy of casting its net wide and pulling out all the stops to land experienced advisors of all sizes carries the risk of angering its 2,000 employee-advisors. While the company is opening the door wide to larger wirehouse brokers who want to join the franchise system, it is also narrowing the window for employee-advisors who want to make the switch to the franchise system. Ameriprise Financial clamps down on franchisees with new rules

Dave acknowledged the possibility that what the company is doing to embrace the larger wirehouse advisors could cause some friction within the company, saying, “Employees can migrate to the franchise channel, but they face requirements for years of service and levels of production.”

He said the company puts the requirements in place to make sure employee-advisors who become franchisees succeed.

Ameriprise is one of the few brokerages (Wells Fargo is another Wells Fargo emerges as independent channel competitor) that have both an independent channel and an employee channel. It’s not always an easy combination. At times, Ameriprise has tried to lure independent advisors to join the employee side. Back in 2006, it increased employee payouts in an effort to do so.

But in this era, it makes sense for Ameriprise to do everything it can to be attractive to experienced advisors, says consultant Dennis Gallant, principal of GDC.

Gallant said the strategy reflects a macro-trend: The cost of recruiting and training advisors has gone up. That almost necessitated a change for Ameriprise, which has long been famous for taking newbie advisors and training them from the ground up.

Gallant suggests that doing so on the same large scale as in the past was just too expensive.

Better to buy an experienced advisor

“The business is moving away from a transaction mentality,” he said. “That means offering more advice, creating deeper relationships with clients.
The higher expectations mean the dropout rate is rising.

“It’s just better to “buy” an advisor with even a few years of training,” he said.

Of course, nearly every company in the business is realizing the same thing – which means that Ameriprise faces stiff competition. To win big wirehouse advisors, it must overcome what Gallant calls its “kitchen-table” reputation.

Yet, the company does have a strong value proposition: Precisely because of its employee side, it has a wealth of resources to offer brokers.
“They provide more support than you would find at your typical independent broker-dealer,” he said.

Ameriprise breaks down the advantages of landing at its employee channel or its franchise channel on this web page.