Following a period of record-breaking advisor movement in 2009, wirehouse firms found themselves in a recruiting downturn in 2010. Financial advisor attrition was high because so many FAs left for the independent side of the business, while those who remained in the wirehouse channel became difficult to poach — the best of them were paid hefty retention packages to stay in their seats. A change was needed to breathe new life into traditional recruiting channels. Anxious to best each other and to beef up their ranks, wirehouses began getting creative: They began recruiting from non-traditional firms like banks and independents and other smaller firms, as well as from the third and fourth quintiles of production (for example, advisors with six years in the business, and $260,000 to $340,000 in annual production) as well as advisors with decent-sized books looking to retire.
While the big Wall Street firms won't pay the same 330 percent bonuses for smaller-end advisors, they are still seeing very respectable transition packages in the 220-240 percent range. To further bolster their ranks, many wirehouses have recently ramped up their “rising star” deals (for advisors with fewer than five years LOS and who are growing their book at a rapid rate), paying these young movers and shakers upwards of 250 percent of trailing 12 months production to join.
As for retiring reps, the wirehouses tend to look for those with at least $250,000 on $50 million under management who are looking to phase out from the business over the short term. Advisors like these can be teamed up with younger FAs, stay on for a few years, and work to transition their businesses into a new team, the hope being that under more active management, their books may generate greater revenue.
Take Brian, a 62-year-old wirehouse advisor from Massachusetts who had been in the business for 30-plus years and was producing approximately $380,000 on almost $75 million of assets. Brian's goal was to gradually retire, exiting the business completely by age 65. Meanwhile, Gary, a 43-year-old advisor at a competing wirehouse producing $650,000 on almost $70 million under management, had been talking to his manager about how to grow his book. The manager immediately saw opportunity in a partnership between the two. He figured Gary would be able to breathe new life into Brian's underperforming book, so he recruited Brian, who became Gary's junior partner. Brian was paid 50 percent of his trailing 12 months upfront on a three-year deal as a transaction package.
Over the next three years, Brian also received an enhanced payout on his business from Gary, and upon full retirement, he would receive a payout that would gradually be phased out over five years. Everyone was happy. The manager successfully recruited an advisor with $75 million in new assets and formed a team doing over $1.1 million in production. Gary received the ability to purchase, over time, Brian's $75 million book and Brian got to retire comfortably within his desired time frame, knowing his clients would be in good hands.
Another wirehouse recently had success recruiting from the independent world: They brought on Jack, an LPL advisor with $285 million under management, $1.8 million in annual revenue and a 75 percent fee book. While he was one of the biggest producers at LPL, he had little access to the thought leadership that could help him to grow. So when the local branch managers of a wirehouse came knocking and offered him a 330 percent deal and the ability to offload all the heavy lifting of running a business, he took it — after much due diligence, of course. Twelve months into his new life at a wirehouse, he has grown his book to $350 million in AUM and is thrilled with the support, platform and brand that surrounds him. A mere 18 months ago, Jack's new firm would have been much less likely to have considered hiring an independent LPL rep.
Recruiting today has gotten a lot more complex. The flight to independence plus golden handcuffs (a.k.a. retention packages) have slowed the flow of advisor movement between the wirehouses. So the wirehouses have adjusted their goggles a bit, becoming more creative with deals and looking more carefully at alternatives.
Mindy Diamond is president of Diamond Consultants of Chester, N.J., a nationally recognized boutique search and consulting firm in the financial services industry.