Competition for recruits is so hot these days that nearly half of the financial advisors from the wirehouse and regional firms have been offered checks to switch firms, according to a new survey from Fidelity Investments and National Financial.
The “Broker Attitude Research” survey released on Monday gleans some information about the state of mind among reps contemplating offers from rivals, including whether their clients would follow them to a new firm—an important consideration for potential ship jumpers. On average, respondents said they expect at least 60 percent of their clients would follow them to the new firm; nearly one-third expect 75 percent of their clients would follow the advisor to a new firm.
For top tier FAs, that number could be quite a bit higher, recruiters suggest. “I advise FAs that they will have 90 percent of the clients they want after the first year, and that percentage has generally been accurate,” says Danny Sarch, founder of Leitner Sarch Consulting in White Plains, N.Y. Sarch says FAs that are trying to estimate their client retention potential only need “to be honest with themselves about how they got the client in the first place, and the nature of the relationship at the time of their move.”
Of the 127 financial advisor respondents at wirehouse, regional, insurance and bank broker/dealers surveyed between the end of September and the first week of October, 34 percent indicated that they have been offered sign-on bonuses to switch firms. Screen out insurance and bank brokers, leaving the more coveted regional and wirehouse FAs, and that figure jumps to 46 percent. (Average AUM of respondents was $45 million; 18 percent of respondents had $100 million in AUM or more.)
“B/d firms and RIAs understand that in the current environment, attracting top brokers and advisors can be a critical component to business growth efforts, as loyal high-net worth clients may often follow their trusted advisors,” says Sandy Metraux, executive vice president of National Financial.
Of course, the wirehouses are battling for talent with recruiting packages rumored to go as high as 300 percent at some firms (200 percent of trailing 12-months production with another 100 percent possible for asset growth targets). But the wirehouse firms are also battling reputational and stock damage that has caused many of their FAs to consider the independent route.
Indeed, it’s not just the firms that are reaching out to advisors. Advisors are showing more interest in independent firms as well, according to Fidelity. In the third quarter of this year, National Financial received more than 160 inquiries from brokers interested in joining one of its broker/dealer client firms. At Institutional Wealth Services, Fidelity’s RIA custodian, 55 brokers with combined assets under management of $7 billion joined up with the firm in the first six months of the year—double the total recruited assets for all of 2007. The RIA custodian manages $335 billion in assets for over 3,500 RIAs.
Schwab Institutional, the RIA custodian arm of Schwab, has also had a banner year in recruiting from the national firms. In the first half of 2008, the firm brought in $9.4 billion in new client assets, besting the $9.2 billion that came to the firm in all of 2007. A spokesperson for Pershing, another rival in the RIA space, says the firm is in active discussions with more than 90 teams representing $23 billion in AUM,” and recently brought over a $1 billion team from Merrill Lynch.
The country’s two largest independent broker/dealers also report big recruiting gains so far this year. According to a spokesperson for Raymond James, Raymond James Financial Services, the firm’s independent arm, the number of recruits in fiscal 2008 is 46 percent higher than that of 2007. LPL would not release exact recruiting numbers, but according to Bill Morrissey, head of branch development at LPL, the firm has had 9,600 “leads” through October, compared to 4,400 during the same period last year. (A lead is considered any contact an FA makes with the firm, whether through a phone call, interview, by logging into the LPL advisor site, etc.) Most significant is the fact that the number of leads coming from FAs with $1 million in production or more is up 259 percent to 600 this year, says Morrissey. “That’s an explosion,” he says.
Another survey, also released on Monday, by Schwab Institutional, Schwab’s RIA custodian, explores advisors’ motivations for taking the independent route. The survey asked 55 of Schwab’s newly independent RIAs—who manage a combined total of $7.2 billion in client assets—why they left their former firms. Respondents cited the following reasons as “very important” factors in their decision to go independent: to work for themselves (75 percent); to deliver more personalized service to clients (62 percent); to achieve long-term financial success (62 percent); dissatisfaction with former employer’s business model (60 percent); to use a broader set of products and services (53 percent); to earn larger income (45 percent); to protect personal reputation (40 percent). (The survey’s 55 respondents manage an average of $131 million in assets and work with clients with an average account size of $4.2 million.)
That said, not all of the news was favorable: Fifty-six percent of respondents to the Schwab survey noted that setting up an independent fee-based RIA was “more challenging than expected.” Still, 98 percent said they would go through with the transition again. Other interesting facts from the survey: 86 percent of respondents said going independent brought them more income than expected; 78 percent said they now have more control over their personal lives.