Big bank brokers use decoys, spy tactics to go alone

Thu Apr 2, 2015 1:52am EDT
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By Elizabeth Dilts

PITTSBURGH(Reuters) - Secret contracts, covert real-estate deals, scurrying around after nightfall to avoid detection: this is how far big-bank brokers are prepared to go when they plan to go independent.

It is a risky enterprise. If the brokerage learns that someone intends to leave, it often dismisses the broker so the bank can try to retain clients.

The Botkin Group, a team of brokers in Pittsburgh who produced $1.6 million in revenue last year for Morgan Stanley, went so far as to require non-disclosure agreements from contractors who made new signs, installed phones and delivered furniture to their new office. They never visited the building during daylight, always staggered their arrival times and parked in the back.

"We felt like we worked for the CIA," said Lester H. Botkin, 35, the youngest of the group, which also includes his father, Lester P. Botkin, 63, sister, Sara Botkin, 37, and one client service associate.

They represent growing numbers of brokers who are leaving big bank brokerages, such as Morgan Stanley, Bank of America's Merrill Lynch, Wells Fargo Advisors and UBS Group AG to branch out on their own.

The big four brokerages lost nearly 7 percent of their market share to independent firms between 2008 and 2013, according to Boston-based research firm Cerulli Associates, a leading global analytics firm. In the next five years, Cerulli expects independent advisory firms to surpass the big brokerages in their control of the market, according to a survey of 7,000 brokers working at firms across the industry.

Most departures so far have concerned brokers who managed relatively few assets. Analysts and industry sources say they expect 2015 to be a turning point for financial advisers who manage more than $200 million in assets at the four big Wall Street brokerages collectively referred to as wirehouses.

The reason is that many of the retention bonuses those firms gave employees during the 2008 financial crisis will reach their final installments this year. At the same time, several brokerages have started deferring more of advisers' current pay.   Continued...

Lester H. Botkin (L) and Lester P. Botkin (C) meet with the vice president of business development at LPL Financial Doug Frank during the opening day of The Botkin Group's new offices in McMurray, Pennsylvania, March 20, 2015.  REUTERS/Stephanie Strasburg