If there is any lesson for advisors in the recent Bear Stearns implosion, it might be this: In times of market crisis it can't hurt to have an exit strategy planned. In fact, I've heard from many advisors at major Wall Street firms that their clients are asking them this very question: If something goes wrong at the firm, do you have a Plan B?
Granted, many of those Bear brokers who actually wanted to leave following the firm's acquisition by J.P. Morgan Chase were able to get great packages elsewhere — and fast. And for those who decide to stay, J.P. Morgan's acquisition of the firm may ultimately be a positive development. But while recruiting deals are at an all-time high, there is also a lot of competition for those deals right now. Because of the turmoil at the major Wall Street firms, and rampant rumors (heartily denied by the firms) that some of them (you know who) might spin off their wealth management units, lately the market has been flooded with advisors looking for new homes. When so many advisors appear on the doorsteps of competitor firms at once, the leverage that each one holds goes down. Firms can be more selective about hiring the largest, cleanest and most productive advisors.
Take “Dan,” a Morgan Stanley manager in the east who relates that he had been courting Steven and Gary, a two-person team coming out of a competing wirehouse firm, producing in excess of $1.3 million on almost $135 million in assets. “I had been dancing with these two guys for more than a year. They repeatedly made demands that I went out of my way to meet, and every time I got them to the altar they failed to commit. I was really getting frustrated with them,” says Dan. After the Bear Stearns announcement, Dan suddenly lost his enthusiasm for this team. “All of a sudden, I had bigger fish to fry. I was talking to a lot of Bear advisors — many larger than Steven and Gary — and as a result of fear that the JP Morgan rescue of Bear provoked in advisors everywhere, I am suddenly overwhelmed with top producers wanting to come work for me. I just stopped courting them. I made the decision to only go after those brokers who truly wanted to join our firm and were ready to commit to do so.”
The wirehouses — particularly Morgan Stanley and Merrill Lynch, who seem to have survived the credit crisis better than other firms — are still capturing many of the biggest recruits with their outsized compensation packages. But plenty of other advisors have decided that there is too much risk in the wirehouse market, and have turned to regional broker/dealers, boutiques or RIAs. This is particularly true for those who have already been able to move from one wirehouse to another at some point in their careers, and pack in at least one giant recruiting deal.
For example, Liz, a wirehouse broker in a medium-sized Midwestern city, recently explored her options with all of the major Wall Street firms, and decided that despite the large transition packages she was being offered, there wasn't enough incentive for her to join them. She made one big wirehouse move 15 years ago, and felt she had taken some equity out of her business with the recruiting deal she received. Plus, her clients were getting more and more concerned about what they perceived as the instability of the wirehouse firms. So, she created her own wealth management boutique.
Undertaking initial due diligence on firms or ventures that might complement your business and better satisfy your clients could allow you to pull the trigger faster than you might otherwise be able to. And in these turbulent times you just might need a quick trigger finger.
Writer's BIO: Mindy Diamond founded Chester, N.J.-based Diamond Consultants, which specializes in retail brokerage and banking recruiting. www.diamondrecruiter.com