Two years ago, over 20,000 advisors switched firms after the market tanked and three of the major Wall Street brokerage firms were swept up into shotgun marriages with other financial giants. Some advisors left Wall Street because they were disappointed with the way their firms handled the mortgage crisis. Others worried about the new ownership. But since that great exodus, there has been a relative lull in financial advisor defections, in part because many of those who stayed put signed hefty retention packages offered by new management.
As time goes on, however, and portions of these packages forgive, advisors under retention agreements are slowly becoming more willing to consider what else is out there. All of the retention packages forgive over a seven-year period, so over the past two years, most advisors have earned at most 30 percent of the bonuses associated with their retention agreements. But at Merrill, some high-end advisors will see close to 60 percent of their retention monies forgive in 2012, says one advisor who is considering making an exit. “I feel those handcuffs loosening every day,” he said.
Merrill's deal, for example, was structured like this: Those advisors producing in excess of $1.75 million in fees and commissions received a 75 percent retention bonus in the form of a seven-year forgivable loan, and another 25 percent in deferred cash over three years. For those who were producing between $1 million and $1.749 million in fees and commissions, they received a bonus paid as a seven-year forgivable loan equal to 75 percent of their prior year's book of business.
In retrospect, the advisor population fell into four segments back in late 2008-early 2009: Those who looked to get out of their firms at that time regardless of the benefits or consequences; those who had to move because their firm imploded (e.g. Lehman Brothers); those who changed firms because of the significant transition packages being offered by all of the large firms; and, finally, those who decided to wait out the storm, put their heads down and attempted to rebuild their businesses.
Some advisors who signed retention agreements have already begun looking for a way out, but plan to hold off on the switch for a year or two, until they can pocket more of that retention money. Take Sam, who had spent his entire 24-year career with the same bulge bracket firm and, in 2008, was generating 12 months production of $1.6 million on $325 million in assets under management. After his brokerage was taken over by a bank, he was offered a retention package worth approximately $1.6 million and the promise that things would improve significantly. Sam was happy to stay put for a time — the negative press abated, improvements were made to platform and technology, and his clients appeared to be more comfortable in general.
But then something happened that changed his mind: In the summer of 2010, he lost a major client who, it turns out, wasn't as comfortable as Sam believed. Meanwhile, a number of branch managers came and left, the amount of paperwork and red tape he had to deal with seemed to be proliferating rapidly, and the amount of time he had to spend with clients was getting pinched. As a result, he began to think about whether he should go independent. He's been aggressively exploring a number of firms and is seriously considering one large independent platform, having had a series of talks with the firm's management, future branch manager, client experts and other financial advisors who work there. But he's not ready to move yet and thinks he will wait until mid-2012 or even early 2013 to make his move. He's not the only one who's considering that strategy.
Mindy Diamond is president of Diamond Consultants of Chester, N.J., a nationally recognized boutique search and consulting firm in the financial services industry.