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The Contradictions of 2022 and Emerging Trends for 2023

An annual report on the forces driving the wealth management industry.

2022 will be recalled as one of the most interesting and contradictory years in history.

The stock market dropped precipitously, and inflation peaked at its highest in decades. Yet, through it all, advisors thrived in ways like never before—with the benefit of a robust seller’s market, and transition deals and M&A multiples off the charts.

As we forecasted in this annual review a year ago, 2022 would become the year of “more” in which all constituents would have greater expectations than ever before. That is, clients wanted more from their advisors; advisors wanted more from their firms; and the firms, too, wanted more from their advisors.

It was a wave of fulfilling each of these requests that bred a year of abundance. The growing desires among each group created a proliferation of choice—with an expansion of models, opportunities and aggressive deals to match—that resulted in an active stream of movement.

In fact, an average of 708 advisors with a length of service greater than three years moved each month through June 2022, according to the Diamond Consultants Advisor Transition Report. And based on our own experience (as hard numbers are not yet available), that activity continued throughout the second half of the year, despite volatile market head winds.

Where advisors went was more disparate than ever before—and instead of domination by a single major player, we saw several leaders in each category of the industry landscape.

For instance, while Rockefeller Capital Management and First Republic Private Wealth Management led the headlines by landing some of the industry’s most elite teams, the real news was actually in the wirehouse world. The diaspora toward independence continued, albeit at a slower pace than in previous years, shifting the tides of movement back toward the wirehouses. With recruiting particularly active at Morgan Stanley and UBS, advisors demonstrated that it’s still the right model for many of them. And Wells Fargo, with bad publicity from previous years finally in its rearview mirror, made a strong comeback.

The regionals, like Raymond James, RBC and others, also captured a large share of advisors—moving their average producer level well over the sub-million-dollar range it once was—proving that culture and control are attractive value propositions even among the industry’s top teams.

Independence remained appealing, even if in smaller numbers than years past, with freedom, control and the potential for long-term monetization as potent drivers. Record valuations and sophisticated buyers, like private equity firms with deep pockets and healthy appetites to acquire high-quality businesses, caused many employee teams to reconsider independence. That is, they are placing greater focus on building a business with the end in mind, even if it meant eschewing a significant recruitment package.

But while “do-it-yourself” independence was once the most popular option in the space, supported independence dominated 2022—with firms like Sanctuary Wealth, NewEdge Advisors, LPL Strategic Wealth Services and Dynasty Financial Partners leading the way for advisors who wanted their own businesses without the hassle of building from scratch. And this year, we saw more of these platform firms offer upfront capital or minority investments to derisk the move and offset lost deferred compensation—a tactic that paid off for both parties.

All that said, it was the W-2 firms that led the field, capturing the majority of advisor movement (with wirehouses leading the pack). The attractive recruiting deals certainly proved to be a powerful tool in their arsenal.

Speaking of recruiting deals, we’ve been saying they were at a high-water mark every year for almost a decade. And just when we thought deals couldn’t go any higher, we were proved wrong. We saw a handful of firms—UBS and RBC, in particular—go beyond their peers with uber-aggressive offers attached to a drop-dead join date as they bid for the industry’s best talent, and, so far, it’s a strategy that’s paid off. Even outside these short-lived offers, boutique firms like First Republic, Rockefeller and Steward Partners recast their deal structures to remain destinations of choice for top teams.

With the tail winds of increased interest rates and hence more profits from net interest margin, several independent broker/dealers stepped up their recruitment packages and scope of services. This led to an increased blurring of the lines between the independent broker/dealer model and supported independence. That is, to compete for top advisors, these b/ds realized they must provide more white-glove support to help advisors establish their practices, as well as robust outsourcing services. The cherry on top was the expansion of affiliation models to include the ability to become an RIA, drop FINRA licenses or gain more independence without the need to repaper.

All that said, how will the activity of 2022 impact 2023 and beyond? Here’s what we foresee …

The 10 Emerging Trends for 2023

  1. Big firms will push harder to “incent” senior advisors to opt in to retire-in-place programs by increasing the deals and more aggressively pushing them to sign on earlier in their careers. But many won’t bite for fear of being locked into the firm and the potential negative impact on next-gen inheritors.
  2. The recruiting pendulum will shift further away from DIY independence and toward supported versions and the traditional brokerage world. Advisors will continue to crave the opportunity to become business owners, with the support they’ve grown accustomed to. As for the big firms, they’ll continue to work hard to show that they are not all the same, amping up technology, growth opportunities and support, plus transition deals. UBS will continue to up its game with a strong guaranteed transition deal; this will have the effect of making advisors demand similar deals from other firms. And Merrill will make its way back to become a real competitor in the recruiting game.
  3. As big firms look to standardize practices and eliminate risk where possible, they’ll become more heavy-handed with compliance and oversight. This comes at the expense of advisor control, as well as an expected uptick in heightened supervision and terminations.
  4. Private bankers and advisors from other nontraditional firms will be a hot commodity in the talent pool—satisfying the industry’s hunger for sophisticated talent. 2022 was a boom year for private bankers, with many firms focusing on this community after ignoring it for many years. We expect this trend to continue as more firms expand their addressable market and realize that bankers are attractive hires, bringing along well-run teams and ultra-high-net-worth clients who are major consumers of bank products.
  5. Inspired by the knockdown success of the multifamily office model (like Rockefeller), more well-capitalized high-end RIA firms will make a play for advisors with creative deal structures that are competitive to those found in the traditional space. It’s a trend driven by private equity firms that have their sights set on investing in quality RIAs—providing the financial firepower to attract breakaways that would prefer to join an established team-based model over starting their own practice.
  6. The breakaway movement from RIAs will continue to accelerate and hit an all-time high. Nonowner employee advisors at the firms, who are also looking to take advantage of this abundance concept, will set out for greener pastures. Driven by industry consolidation, it will create a whole generation of advisors feeling more captive than ever and with a deep desire to reap the same financial rewards that their firms’ owners realized.
  7. The “affiliation slide” will grow in popularity as firms with multiple-affiliation models—like Wells Fargo, Ameriprise, LPL Financial, Raymond James and Stifel—continue to provide more pathways for those looking to change models. This ability to “slide” from one channel to another will prove valuable in staving off attrition while making transitions easier for advisors and their clients.
  8. IBDs and supported independent platform firms will become the new built-in “buyers”—in response to advisors’ desire for M&A and succession planning options. The heightened popularity of minority noncontrolling investors provides an opportunity for these firms to create liquidity and solve for succession.
  9. The days of the “Big Bad Bank” will fade—and bank-owned firms like Merrill, Wells Fargo and First Republic will increase in appeal among advisors drawn to the one-stop-shop capabilities, compelling brands and growth opportunities.
  10. Despite a slower-than-anticipated rollout, Goldman will find its stride and give custodians like Schwab, Fidelity and Pershing a real run for their money—particularly with high-net-worth-focused advisors. Those waiting for the next “big thing” will see this as an opportunity to have the Goldman imprimatur backing their independent businesses.

We’ve written much about how advisor mindset has changed over the years—shifting from placing value on upfront transition money to obtaining more freedom and control. Advisors are also looking more introspectively at their career enterprise value—regardless of whether they are independent business owners, employees at one of the big brokerage firms or somewhere in between.

This will be the year that advisors take a step back and conceptualize not just how to maximize the value of their business and annual compensation, but also how that translates into achieving their best business lives.

Mindy Diamond is CEO and Louis Diamond is President of Diamond Consultants in Morristown, N.J., a nationally recognized boutique search and consulting firm in the financial services industry. 

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