Given all the upset in the market and the demise of several major Wall Street firms in the past year, it seems like it is harder than ever to be a financial advisor. With that backdrop, The Next Move recently caught up with three seasoned recruiters—Mindy Diamond, Danny Sarch, and Larry Papike—to get their take on the state of the industry.
Q: What advice can you provide to help financial advisors advance their careers during this difficult time?
DIAMOND: Clearly the markets have been uncooperative, but I think that financial advisors are in a very unique and wonderful position—certainly better than anyone else in the financial services industry, in that they have equity in their business and can monetize that business at any time for significant dollars. The wirehouses continue to pay very attractive transition packages. Regional firms pay a bit less but tend to offer more flexibility. Going independent is always an option as a way of monetizing the business over time and developing a succession plan. My message to all financial advisors would be that they have choices and the ability to change firms and replace lost wealth.
SARCH: The best advice I can give any advisor is to take care of their clients as best as they can, because the ability to retain and attract clients is what gives them job security.
PAPIKE: Promote, promote, promote. Now more than ever, clients need to feel that their advisor is staying on top of their portfolio. It is so easy in these times to bury your head in the sand, but successful advisors will be in constant communication with their clients while promoting their services to new clients.
Q: In Registered Representative’s 18th annual Broker Report Card survey, wirehouse FAs say they are fed up with management ruining their franchises. If and when will the great advisor exodus begin?
DIAMOND: The exodus has surely already begun and has been going on for a while. There have been more “bodies in motion” recently than at any other time in history. Plus, we will see lots more movement in the first quarter as advisors scramble to move before the best months of their Trailing 12 fall off.
PAPIKE: With the technology advances in the past several years, independent [firms] can now provide wirehouse brokers and their clients the technology, research and services they need. This has created an environment where the exodus has already begun. Currently, advisors and their clients are fed up with the greed and carelessness of some of the wirehouse firms. Once the market stabilizes, we will see this frustration manifest itself into tremendous movement to the independent space.
Q: How has upheaval in the industry affected the desire/willingness of FAs to explore independence?
DIAMOND: There is no question that many more advisors than ever before have been exploring the independent route. I read a great statistic recently which said that 65 percent of all advisors who are thinking of making a move express a desire to go independent, but in reality only 27 percent wind up doing it. I think this is accurate. The reason so many advisors are asking about going independent is because they are completely fed up with senior leadership at the major firms and are looking for freedom from that. While they are right that going independent would give them that, for many advisors (probably the vast majority of them), the economics of going independent don’t always work.
SARCH: More advisors than ever are exploring the independent route or alternative solutions that are hybrids or pseudo-independent solutions or a strong regional firm that supports true ownership of a franchise. With loyalty gone, advisors are hungry to find a way to build equity in themselves.
PAPIKE: The current crisis has forced many advisors to put off making a move to independence. With client portfolios being down significantly, it makes it more difficult for FAs to go to their clients and ask them to move.
Q: Financial advisors lately have been flooded with fat recruiting offers. Will this continue?
DIAMOND: In the past year, we have been witness to some of the most aggressive recruiting deals Wall Street has ever seen. Deals have come down a bit, and I don’t expect them to reach astronomical levels again for quite some time. But deals are still very aggressive and when you think about the fact that an advisor’s deferred comp is way down, what it takes to make it worthwhile for him to move is a lot less than it once was.
SARCH: The recruiting deals are coming down off of the highs for several reasons. Excess supply (everyone is interviewing!), businesses are down (would you pay as much for a practice today as you would have paid a year ago?), fewer empty desks (all major firms have consolidated branches). That said deals are still historically very high.
PAPIKE: I would have thought the fat deals would have been gone by now, but with wirehouse firms desperately seeking talent, coupled with many of them having money to pay those big deals, I don’t see them going away any time soon.
Q: What are the top issues/concerns for FAs in 2009?
DIAMOND: I think that, unequivocally, the state of the market will be the top concern for advisors in 2009. Advisors are very worried about keeping their clients happy and being able to continue to grow market share.
SARCH: It is a HUGE open question whether the mega mergers will be successful. One cynical Merrill Lynch advisor asked: “Show me a merger of this size in any industry that three years later, employees and investors are cheering…”
PAPIKE: There are numerous concerns on the minds of FAs in 2009. First of all, they are faced with keeping their clients calm and loyal during this uncertain time. They are also dealing with the possibility of being forced to move broker/dealers as their current environment may continue to make headlines that create additional uncertainty for clients. Lastly, FAs are dealing with how they will expand their practice as their assets have dwindled somewhere between 20 percent and 50 percent, which is causing their commissions to go down proportionately