Brokers go independent

Amey Stone

Now that so many traditional stock brokers charge an annual fee based on assets under management for their services (rather than a commission on stock or mutual fund trades), a lot of them are deciding to go it alone. All they need to do is quit their day job, register as an investment advisor, sign up with a firm like Schwab, Fidelity, or TD Waterhouse that will act as their custodian, trader and back office, and get their clients to transfer their accounts. Presto, they are in business. (Okay, it's not that easy, but it's not that hard either).

"A lot of brokers have started to look and act more like registered investment advisers within a wirehouse umbrella," Bob Oros, senior divisional sales manager for Schwab Institutional, told me in a recent interview. "The next logical step is, 'do I really need to share revenues with this firm or can I go it on my own?'"

Schwab commissioned a report on the topic of brokers turning independent, which it released in July. It found that by 2004, independents had 47.5% market share of high-net-worth households, up from 30% 2001. At the same time, traditional stock brokers lost market share, claiming 30% of high-net-worth customers in 2004 vs. 40% in 2001.

The report found that not only do brokers want to run their own show and keep more of the income they generate (rather than having the brokerage firm they work for get a big slice), but they also see a strategic advantage to not being associated with a big brokerage house. Many of the high-net-worth customers these brokers hope to serve like the idea of having an independent advisor -- believing them to be more objective and face fewer conflicts of interest than a traditional broker, according to the Schwab report.

As Oros put it: "There is heightened sensitivity to clients wanting to make sure someone is putting their interests first."

Before it's here, it's on the Bloomberg Terminal.