Paying retention bonuses to top brokers to keep them from jumping ship is a pricey strategy that only works some of the time, a report released today by Aite Group shows. Aite surveyed 400 advisors in wirehouses and independent b/ds in the fourth quarter of last year.
Within the wirehouse channel, those advisors who got retention bonuses had higher levels of satisfaction—69 percent of those who got the bonuses said they were “satisfied” or “very satisfied” compared to 45 percent who did not receive retention bonuses. But there are limits to how much love a wirehouse can buy; 24 percent of advisors who got retention bonuses still said they were “unsatisfied” or “very unsatisfied.”
Even among brokers who received retention payments, a portion are considering leaving, the report showed. “A great deal of broker switching can clearly be expected to take place in 2010 and 2011,” wrote analyst Alois Pirker, author of the report. “Rival firms still have plenty of opportunity to cherry-pick from the wirehouse broker forces, especially among those brokers that did not receive a lock-in contract. Many of them are looking for a new employer.”
“It appears that the retention packages have bought wirehouse firms time, but not the undivided loyalty of their most valued brokers,” he continued. “Close to four in five locked-in brokers say there is some chance that they could leave their employer in the next 18 to 25 months, with 10 percent saying it is more likely than not.”
Top performers who remain dissatisfied could easily choose to defect, especially as rivals continue to offer unprecedented sign-on bonuses for top talent, said Pirker in an interview. Across lower-tier producers (who didn’t get retention bonuses), wirehouses "should prepare to see a continuation of intense breakaway activity,” he said.
Why are people unhappy? The biggest reason cited by wirehouse advisors is the desire for a higher payout, “hardly surprising, given the production-driven nature of the brokerage business,” Aite says. The lack of an offered retention bonus was the second-biggest reason in the wirehouses. Among captive b/ds outside the wirehouse channel, “uncertainty at current employer” was offered as the biggest reason for breaking away, followed by looking for a higher payout.
Wirehouses can perhaps take comfort from Aite’s finding that 35 percent of its advisors who were thinking of leaving planned to stay within the wirehouse channel. Another 26 percent want independence, while 23 percent would join a full-service brokerage outside the wirehouse world. Among independent b/d advisors who want to switch firms, 33 percent said they would become an advisor at a private bank or family office; 30 percent would opt to switch to a wirehouse.
Among wirehouse advisors, 55 percent said they were “satisfied” or “very satisfied,” compared to 58 percent in the IBD channel. Only 16 percent of wirehouse advisors said they were “unsatisfied” or “very unsatisfied,” compared to 14 percent of IBD advisors polled. Meanwhile, just 15 percent of wirehouse advisors said they would not change employers, compared to 36 percent of IBD advisors who answered the same way.