December 15, 2009

FA Outlook for 2010: Demand to Remain Strong

As bedlam gives way to calm, top advisors should like the new order at the wirehouse, regional and independent broker-deals.

If 2009 was a year of unprecedented turmoil, 2010 is likely to be the year of calm. But that doesn't mean it won't be interesting for financial advisors.

The landscape, ripped up in the economic upheaval of the Great Recession, is astoundingly changed: Morgan Stanley and Smith Barney have joined at the hip; the raging bull at Merrill Lynch now gallops under the Bank of America banner; Wachovia and AG Edwards have gone to the arms of Wells Fargo.

But new competitors are lurking everywhere, wooing and winning over top talent. Just as Joseph Schumpeter predicted, the creative destruction inherent to capitalism is bringing about a new order. In 2010 top advisors will like the new order.

Survivorship has its privileges.

Creative destruction isn't pretty to watch. The past year was a wild ride, punctuated by one extraordinary event after another.

Wirehouses

This is the first time in 25 years of recruiting that every single firm on Wall Street had a monkey on its back. It's not uncommon for firms to rise and fall in popularity for reasons both obvious and subtle. But we have never worked during a time when every single major Wall Street firm was struggling to protect their reputations in some way.

Many wirehouse advisors would say to us that their clients were worried about the very viability of their employers; they needed to change. Unprecedented - as was the number of advisors who switched firms.

Set aside the makeover of the wirehouse world as we once knew it - and the list of "unprecedented" continues. Go on to the dogfight for top-quartile advisors: Even as many Americans struggled to hang on to their homes and the stock market took some death defying turns, retail firms put together stratospheric offers to lure talent.

The offers, however, came with unprecedented conditions. Contracts stretched from seven years and ultimately to nine. The fine print changed too. A new generation of bigger than ever deals emerged - 300 percent packages for advisors who could boost their client assets by 50 percent over the term of the contract.

Amid all the turmoil, advisor popularity is easy to explain: The business proved more profitable than anyone imagined: Many predicted clients would leave in droves. That never happened. Instead they redistributed assets, re-thought strategies, but more or less, stayed true to their advisors.

By contrast, advisors have not been as loyal to their profession. Their ranks, shrinking for decades, withered during the Great Recession.

Many producers nearing retirement threw in the towel early and those with weaker franchises headed to the exits as well. Potential new entrants probably decided that they might do better on a different career path.

The big wirehouses got tougher on those left behind: Anyone with five years in the business and less than $350,000 in commissions saw their payout schedules chopped - the equivalent of saying, go, we don't mind at all if you do.

Regional Firms

Regionals in particular benefited from that weakness of reputation with the big firms and continue to do so. Once viewed as the poor country cousins to the city slickers, regionals metamorphosized from also-rans into the big men on campus that boasted flexibility, kinder management, and - the cincher - serious deals.

The make-over was so successful that several have all but stopped recruiting. They didn't have the floor space or the administrative ability to hire more in 2009.

Expect regionals to remain big players for the diminishing pool of talent, especially as the Big Four pursue their agenda to lower overhead and scalp the home office staff budget.

Independents/RIAs

Not unprecedented, but noteworthy for 2009 and 2010: The independent/RIA channel is winning over advisors with an entrepreneurial gene.

This sector is especially attractive to advisors thinking about retirement. Independents have greater control over setting the sale prices on their practices and more investment freedom. Some media outlets are breathlessly proclaiming a California Gold Rush, a veritable stampede. That's not quite the case. But we expect the steady flow to independents to increase in 2010.

If unprecedented was the hallmark of 2008 and 2009, then routine may become the byword of 2010. Not very sexy, but comforting -- like meatloaf and mashed potatoes.

High-end advisors can command bigger deals and have more options than ever before. So at the moment, comfort food looks like a pretty good deal after all that creative destruction.

Reprints Discuss this story
This is where the comments go.