Drive coincides with rising level of advisor discontent with current firms. McLean Va.-based RIA Spire Investment Partners -- formerly Legacy Partners -- has created its own broker-dealer in a bid to step up it's recruitment of "breakaway" brokers. Spire aims to add 25 to 50 private-client investment consultants to its existing roster of 20 operating in 13 teams.

"As a hybrid firm, that is, an RIA with a broker-dealer attached, we can offer a wider range of investment solutions and a wider range of fee alternatives than is typically available in the brokerage-only or fee-only environment," says Spire principal David Blisk. "And we have the flexibility to price these solutions either as fees or as commissions, based on our clients' preference."

Dual purpose

Besides helping advisors meet their clients' needs, having an in-house broker-dealer is "a great support to business like ours that's growing in the high-net-worth arena," says Spire's sales director and chief recruiter Paul Murphy -- who figures the firm stands to cut its brokerage-service costs by at least 20% through "in-sourcing."

In its hunt for advisory affiliates, Spire is "primarily looking for people who are established in the business," says Murphy -- and though the new broker-dealer capability points the firm squarely at fee-based brokers who want flexibility to provide commission-based services, it's equally keen on bringing smaller RIAs.

"A shop with $35 [million] or $50 million in [assets under management] might provide a great living for someone, but we have $1.3 billion in [AUM], so by affiliating with us they get our name recognition and scale and [they] can take advantage of the investments we've made in technology and infrastructure," says Murphy.

Though positioned as a de facto RIA aggregator, Spire isn't really competing with venture-capital-backed holding aggregators like New York-based Focus Financial Partners and Nashville-based WealthTrust -- which generally aim at high-growth firms with at least $350 million in client assets -- or even Newport Beach, Calif.-based United Capital Financial Partners, which fishes a bit farther downstream.

Rather it's a potential home for the "have-not" RIAs described in Back to the Future, a 2005 study published by JPMorgan Asset Management's Undiscovered Managers.

Little guys

Have-not firms may, as Murphy says, compensate their owners adequately, but they lack the funds to invest in growth or to react nimbly to changes in the marketplace. So as the advisory space becomes more rationalized, have-not firm owners have to run harder to stay put.

"[The have-not] group includes about 94% of all industry participants and all of those firms [with] less than $25 million [in] assets under management," says the 2005 study. "A majority of the industry's mid-sized participants also fall into the have-not category because they too are unprofitable as businesses despite operating at or near capacity." The have-not category also includes "firms that generate between $1 million and $3 million in annual revenues but have unattractive client bases or are inefficient."

Have-not firms also make unlikely acquisition targets, so affiliating or otherwise chucking in with bigger firms can help owners get some compensation for the value they've built up over the years -- though of course those arrangements differ from aggregator to aggregator.

But whether its search is for disaffected (or downsized) wirehouse brokers, independent reps itching for a better deal or hard-pressed RIAs looking for scale, Spire may have timed its recruitment drive right.

A new report by Fidelity's clearing subsidiary National Financial says that 9% of advisors -- brokers and investment advisor representatives alike -- are "likely to consider" jumping ship this year. That's up from 5% last year.

Just as interesting, 62% of those mulling a break prefer the idea of "moving to another type of firm" -- with independent broker-dealers, regional brokerage and RIAs their preferred destinations.

"A lot of advisors are frustrated where they are," says Murphy. "They're frustrated by the fact that their firms don't always make prudent business decisions. It's all lawyers and compliance -- and that's vital of course -- but can take away from the idea of 'Hey, we're supposed to be running a business here.'" -FWR

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