By Jed Horowitz
NEW YORK (Reuters) - New York firm Cantor Fitzgerald, which is branching out from its core business of electronically trading bonds with other brokers, plans to start managing assets for wealthy individuals around the end of the year, a company spokeswoman confirmed.
Cantor Chief Executive Howard Lutnick has amassed a wide range of new businesses to offset lower income from trading commissions that have fallen due to technology and declining volume.
Cantor Fitzgerald Wealth Partners will cater to people with at least $5 million to invest, with an emphasis on those with $50 million, said Stan Gregor, co-chief executive of the new unit, in an e-mailed statement.
Gregor, a former private banking executive at Wells Fargo & Co. joined Cantor earlier this year.
The new business would be Cantor's first to work directly with individuals.
Wealth management is becoming more popular with Wall Street firms eager for steady fees to offset more volatile investment banking and trading revenues. Most wealth management firms get paid a percentage of the assets clients entrust to them.
Cantor will be entering a highly competitive area populated by large and small broker-dealers, asset managers and consultants offering different models to successful financial advisers. Many brokers are shedding licenses that let them collect commissions on stock, bond and fund sales to become fee-based registered investment advisers, a transition they say lets them be more objective about their advice.
On Friday, Morgan Stanley said it was purchasing the part of Citigroup Inc's Smith Barney brokerage unit it does not own to offset its volatile capital markets businesses.
Gregor said Wealth Partners will recruit both independent investment advisers and brokers who prefer charging fees rather than selling commission-based investment products.
As a firm with a short-term, aggressive trading culture, however, Cantor could face challenges convincing advisers it has the patience to build an asset-gathering business.
"They are smart, tough guys, but there is a big difference between transaction-based, high-tech trading platforms and fee-based wealth businesses," said a banker specializing in wealth management, who is familiar with Cantor's strategy. "They don't like to spend a lot and they are not comfortable with investments that take patience and time."
Like others outside Cantor interviewed for this article, the source spoke on condition of anonymity so as not to jeopardize his current employer or his relations with Cantor.
Lutnick is known for his autocratic management style, as well as for his philanthropic efforts after 658 of Cantor's 960 New York-based employees were killed in the September 11 attacks on the World Trade Center.
In his email, Gregor said the wealth unit "will be operating completely independent and unbiased and free of conflict from other Cantor businesses."
Wealth Partners will in some ways follow the model of HighTower Advisors, a four-year-old Chicago-based firm that recruits brokers from Morgan Stanley, Merrill Lynch and other big firms with offers of greater independence and, often, equity in the company, said a source familiar with the strategy.
Like HighTower, Cantor is likely to offer equity to its advisers and the opportunity to operate relatively independently as registered investment advisers. The equity could be enticing if the entire firm ever goes public, another source said.
BGC Partners Inc, a relatively small part of Cantor, is currently publicly traded.
A Cantor spokeswoman said the possibility of going public is discussed annually at the firm, which was founded in 1945.
Although wealth management is new territory for Cantor, Lutnick has been pushing the company into alternatives, including its Cantor Gaming business that makes accounting systems for gambling companies and mobile technology for casino-style games.
Cantor acquired a hedge fund of funds called Cadogan Management in late 2011 as part of its efforts into managing alternative assets, primarily for pension funds. It also has been building equity capital markets, loan trading and investment banking businesses in the United States and parts of Europe.
Last October, Moody's Investors Services slashed Cantor's debt ratings to junk and knocked BGC's junk rating further down to Ba2. The core bond businesses were likely to suffer continued low profitability, while the firm's diversification into competitive capital markets and banking businesses were challenged by a weak global economy and the need to build capital, Moody's said.
A Moody's official said he could not comment on the retail brokerage plan because the rating agency withdrew its coverage of Cantor in November. Lutnick has pushed for Moody's to drop coverage since the ratings firm opened a review of Cantor's strategy in July 2012.
(Reporting By Jed Horowitz; Editing by; Linda Stern, Carol Bishopric and Andre Grenon)