Compensation Survey [1]
Make Your Move?

Make Your Move?

Retention and recruitment deals are still an active component in the big firm landscape. But for how long?

Wirehouse advisors are the most likely to have retention packages as part of their overall compensation structure, according to REP.’s annual compensation survey. Thirty percent of those advisors say they received forgivable loans and other forms of retention-based pay within the last seven years.

It’s a small portion of the advisory universe, but Matt Lynch, principal at Tiburon Strategic Advisors, says these deals went only to the highest producing teams. “When you think about the population of advisors, about a third to half of them are below whatever the threshold is to qualify for a retention or recruiting bonus,” he says.





Still, an estimated 15,000 advisors hold the packages, some extending out to 2021. Over half of the wirehouse advisors who responded said they have deals in place at least until 2016.

They are less popular among the regional and independent broker/dealers; the survey found 11 percent of advisors at IBDs have retention compensation. These were likely advisors who had transition packages provided during firm mergers and acquisitions, says Ryan Shanks, head of Finetooth Consulting and Find-A-Firm.

[5]And they are effective, as long as they last. As many as 25 percent of wirehouse and national brokerage advisors report they will leave once their retention packages expire.

“I’ve always questioned to some degree, the efficiency and ability of retention packages to create long-term retention because what’s happening is, to some degree you’re training advisors to expect money,” says Philip Palaveev, CEO and owner of The Ensemble Practice LLC. “It’s kind of like giving candy to your kids when they cry. First of all, you’re rewarding the wrong behavior. Second of all, what happens when you run out of candy?”

For firms, it’s a brutal logical loop. Firms may scale back on retention deals, but then pony up the money to recruit new advisors. 

According to the survey, recruiting packages have ranged up to $10 million in the last four years, with many advisors saying they received six- or seven-figure deals.

One in five advisors at regional firms took these deals. Sixteen percent of IBD advisors also received some form of transition pay. Packages at these firms were slightly lower, with highs of $210,000 and $150,000, respectively, in the last four years.

Shanks suspects more advisors get recruiting packages than the survey reflects. FINRA’s proposed rule requiring brokers to disclose recruiting compensation could be one reason, he adds, especially since the proposal has been front-and-center in recent months. “Some of it also might be from this discussion around disclosure and the concern that this could flow back somehow and negatively affect them,” Shanks says.

But Scott Smith, director at Cerulli Associates, says advisors don’t have a lot to worry about with the proposal. “It may tamp down the outlandish [compensation package] tales a bit. They might get a little more creative with it; instead of a forgivable loan, they offer other stuff,” he says. Smith sees it as an opportunity for firms to go beyond loans and tie compensation to tangible results, like advisors’ long-term profitability.

The lower-than-expected number of recruiting deals could also be part of a bigger psychological shift, Shanks says, as advisors look to monetize their practice over the long term. 

“For many advisors, they’re sort of past the point of looking for money as one of the key reasons they’d make a change,” Lynch says. Like any entrepreneur, “they’re trying to make better business decisions.”