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Heavy Hitters Huddle In New York For Tiburon CEO Summit

Charles Paikert

18 April 2012

How will the financial services industry divvy up the $28.6 trillion Americans currently have in investable assets?

If you are a heavy hitter in the wealth management business, you were probably at the semi-annual Tiburon CEO Summit at the Ritz-Carlton at Battery Park in New York City yesterday to find out - and make sure you got your piece of that lucrative pie.

Indeed, the topic of the keynote presentation was no less than “the future of wealth management,” delivered by Tiburon Strategic Advisors managing partner Chip Roame in his trademark fast-paced and irreverent stand-up style.

The heavily-hyped “break-away broker” phenomenon, Roame said, is just beginning. But, he cautioned, the rate of its acceleration will be determined almost entirely by the big wirehouses. “If they want to pay people to stay,” he said, “they can, and they will.”

Self-directed investing will grow rapidly, he asserted. “In the next ten years you’re going to see a reversal in the number of bank branches and discount brokerage firm branches across the country,” Roame predicted.

And investment products will be increasingly polarized, he said, with more interest in indexing at one end of the spectrum and in hedge funds and other alternative investments at the other.

Who will follow break-away “big elephants?”

The break-away broker trend is “not yet in full force,” according to Roame. “The big elephants have moved,” he said, “but what’s going to be more interesting is who else will follow.”

That will be largely determined by the wirehouses, he said, who will have to make a strategic decision whether to staunch the flow of departing advisors by paying them off with bigger packages and signing bonuses or letting the average-to-poor performers go and concentrate on keeping the top producers.

“The wirehouses are not stupid,” Roame said. “They see what’s happening. They just have to decide what to do about it.”

He also noted that wirehouses and regional broker-dealers still have the biggest market share of industry assets under administration by far, controlling 58 per cent of those assets, compared with 35 per cent for independent advisors and 8 per cent for banks and insurance companies.

And, he pointed out, many of the so-called “break-aways” in fact got fired for under-performing, and a mere 4 per cent of  break-away brokers control half of the departing assets.

The future of break-aways will also be determined  by whether one or more of the major brokerage firms establish a “half-way house” and become a custodian for brokers who are tired of the mother ship but don’t want the hassle of running their own business, Roame said.

Self-serve “revolution”

Roame warned his audience to heed what he felt would be gale-force winds blowing in from what he called the “self-serve revolution.”

He noted the rapid growth of the five firms that dominate the discount brokerage business: Fidelity Investments ; Charles Schwab; TD Ameritrade; E*Trade and Scottrade.

These firms are boosting both average account sizes and revenues per employee and lessening their reliance on trading revenues, Roame said.

Driving “the online tools and advice business,” according to Roame, are a younger generation who grew up with the internet and skeptical baby boomers who got burned in 2008  and distrust financial advisors.

David Booth, chief executive of Dimensional Fund Advisors, agreed with Roame, to a point. Investors are getting more involved with their own portfolios, Booth said, “not so much to manager their own money, but to become more knowledgeable.”

Product split

The investment process, Roame said, is being polarized with twin growth patterns in both market-linked products such as exchange traded funds, index mutual funds and indexed separate accounts and alternative investments such as hedge funds, private equity and real estate.

And while about 80 per cent of investable assets are currently actively managed, Roame believes indexing is primed for a major growth surge.

Bring it on, said Putnam Investments chief executive Bob Reynolds. “The more indexing you have, the more inefficient the market is,” Reynolds said. “And that means more opportunity for active management.”

A-list attendees

Industry chief executives attending the conference included Shirl Penney, Dynasty Financial Partners; Jud Bergman, Envestnet; Jessica Bibliowicz, National Financial Partners; James Carney, By All Accounts; Ric Edelman, the Edelman Financial Group ; Mark Casady, LPL Financial and Al West, SEI Investments.

The Tiburon conference concludes today – but with a black-out on media coverage.