True, an astonishing number of financial advisors jumped ship as the economy somersaulted over the past two years, leaving no firm unscathed. The massive displacement of 2009 -- estimated at some 8,700 advisors among the top four wirehouses -- couldn't possibly take place again; it was the product of a unique set of circumstances.
Over the past two years, every major firm on Wall Street suffered a black eye of one sort or another. Many advisors felt that they needed to switch firms, even if it meant switching to another bruised entity; their clients preferred the less familiar damage.
Advisors also readily snatched huge deals to replace lost wealth: for some years and years of deferred stock compensation became worthless after the havoc of 2007-09.
So technically speaking, the survivors are correct: There will be less advisor movement this year than last. But that's like saying Dresden isn't going to lose as many homes in 1946 as it did in 1945.
Nonetheless, advisor movement will not be a rarity. As we've written before, broker demographics make stability a pipe dream: The declining number of solid advisor practices and the increasing demand for their services will keep deals at their current lofty levels for years to come and encourage broker movement.
And equally important, even as Wall Street's mainline firms are shrinking, new ones are popping up keeping the competitive pressures in place.
Going forward, I would expect moves to be more judicious; the frenetic quality of the past two years has ebbed. That's a good thing.
Firms are hoping that new retention packages will make advisors less likely to move. And, again, there's some truth in that. But the retention packages are much smaller than deals to switch firms -- it's the difference between risk-free, hassle-free money and money-at-risk and all the anxieties that go with a move.
The typical retention package for top players is 75% upfront. Deals to move begin at 140% on the upfront portion; the total package, including backend requirements, can exceed 300% of production.
Advisors with less than $750,000 in production get handcuffs as well, but they are more like costume jewelry than real gold. For the moment, many top advisors who took the retention deals are pausing to take stock of their situations. The retention deals will not keep them from moving if they decide for any reason that they should move; if they have a good business, a competing firm will make them an attractive offer.
In a recent interview, Morgan Stanley CEO James Gorman opined that recruiting is becoming more "rational," that is, deals won't be so pricey and will be better structured. This new generation of deals rewards advisors who can keep their clients and assets and attract new clients.
For example, both the new Morgan Stanley Smith Barney joint venture and Merrill Lynch are offering up to 330% packages to top producers who can increase assets and production by 50% within the first 5 years of the nine-year deal.
These backend requirements will remain a permanent feature of the recruiting landscape, making deals more "rational" from the standpoint of firms, customers and their shareholders. The advisors that we've spoken with feel that these are reasonable and attainable goals as well. We've yet to encounter any advisors that were put off by them.
The war for talent isn't ending; it's just reconfiguring. Despite the contraction in the wirehouse world to four major firms, an aggressive and savvy breed of new players are emerging to vie for wirehouse talent.
Regionals are just one group vying for top talent. There is a new breed of independent firms, some with private equity funding, who offer compelling cash and stock deals to high-end advisor teams. We're just at the beginning of this story and will likely see many more of these players in the coming years.
Despite lucrative retention packages, which will slow broker movement to some degree, wirehouses will remain vulnerable to advisors hitting the bid elsewhere. As we should all know by now, expect the unexpected.
It may be hard to believe that the reputations of the big retail houses could suffer anymore than they already have, but it's not impossible either. Negative press seems to be an ongoing, periodic problem for many firms.
Also, Wall Street firms are always introducing policy changes that rankle advisors who will hightail it to friendlier locales. There's no reason to expect that to change.
Most important, advisor psychology militates against top-down central planning solutions to limit broker movement. Advisors are opportunistic businesspeople always on the lookout for the optimal platform and environment for their businesses. They act quickly to rectify business issues and will change venues if they think that their firm is part of the problem and not part of the solution.
This is not a good time for complacency on the part of brokerage firm executives.