Schwab and TD Ameritrade go on breakaway recruiting tear in September

Schwab Advisor Services and at least one competitor had phenomenal success in recruiting breakaway brokers during September.

The San Francisco-based custodian brought aboard advisors at a rate of more than one per business day to claim a total of 25 teams with $2 billion for the month – in line with predictions made in August by Barnaby Grist , Schwab Advisor Services senior managing director of strategic business development.

“This time we were absolutely spot-on with 50% higher [recruiting success] than any month has ever been,” he says.

Schwab finished its quarter ended Sept. 30 with a haul of 52 teams that chose to go independent and move assets there, a record number of firms for a quarter at the custodian.

It’s 30% more teams recruited than during the same period last year. The custodian recruited 37% more teams than for the three months ended March 31 and 44% more than for the quarter ended June 30.

Schwab recruited 126 brokerage teams in 2009 as of Sept. 30.

The story at TD Ameritrade was similar. It recruited 17 advisor teams in September and 33 teams for the three months ended Sept. 30. The Jersey City, N.J.,-based custodian brought aboard 103 total advisor teams for the nine months ending Sept. 30.

The seemingly sudden acceleration in recruiting success by the custodians can be largely explained by the harsh stock market conditions followed by very good ones, according to the custodial executives.

“It’s the unleashing of pent-up demand,” Grist says. The other difference in the recruiting environment is that more and more of the teams are bringing significant assets with them, Grist adds. Most of the defecting advisors during the first six months of 2009 managed assets in the $50 million range, Grist said in an earlier interview.

Emotional and logistical

The numbers also reflect the completion of many brokers’ long emotional and logistical journeys, which for many began back when the wirehouses were discredited in Wall Street’s cash crisis of last year.

“We’re seeing the fruits of all the planning efforts” on the part of advisors who began charting their course last year, says Tom Nally of TD Ameritrade.

Eric Thurber, Fred Molfino and Brett Sharkey understand how it can take a year. They brought $740 million with them from Morgan Stanley Smith Barney to Schwab in August. They now operate as Three Bridge Wealth Advisors in Menlo Park — a process that began at this time last year.

“Last October Citigroup [shares] went to under a dollar a share and we realized our custodian was at risk,” said Thurber, a managing director of the firm, in an earlier interview.

Eric Thurber [far left]: “Last October
Citigroup [shares] went to under a
dollar a share and we realized
our custodian was at risk.”

A second Morgan Stanley Smith Barney team, Henry Ford and John Graham, joined Schwab on Sept. 2 with about $400 million of assets under management. They folded their practice into Concert Wealth Management.

Schwab and TD Ameritrade are also enjoying success luring non-wirehouse brokers to its platform.

Case in point is Steven Novick, principal of Novick & Co. Financial Partners in New Canaan, Conn., who joined Schwab from LPL Financial in August. Novick & Co. manages about $340 million.

Before affiliating with LPL, Novick’s previous employers included: Merrill Lynch, Pricewaterhouse and Morgan Stanley and AXA [in that order].

Novick says the process of becoming an RIA was smoother than expected. “It’s not as difficult as someone would have perceived at the outset,” he says.

There’s a broad base of brokers from independent broker-dealers testing the RIA waters, according to Nally.

“We’re seeing a ton of activity and not just the non-LPL broker who cleared through Pershing but traditional LPL folks,” he says. “We’ve got quite a few Raymond James advisors that we’re talking to,” he adds.

Tom Nally:"We’re seeing a ton of
activity and not just the non-LPL
broker who cleared through Pershing but
traditional LPL folks."

IBD defections

Grist agrees that IBD defections may be on the rise.

“I think there’s an uptick,” he says. “We had a big team come over from Commonwealth [Advisor Network] this summer. Big teams outgrow the IBD model.”

Another steady tick is coming from clients of brokers who are taking matters into their own hands, Grist says.

Net new asset flows into the firm’s Advisor Services business rose to $11.1 billion for the third quarter ended Sept. 30 and an increase of 44% from its second quarter. Of those $11.1 billion of assets, 85% or $9.3 billion flowed to RIAs from brokers, according to Schwab. Most of those assets came in through existing RIAs.

So can the asset custodians continue to raid the best talent of the wirehouses and IBDs at this rate?

“We think the rest of the year looks good, but we can’t expect the strength of September to continue,” Grist says. October and November will be strong and then there’s likely to be the traditional drop-off in activity around the holidays, he adds.