Close Close

Practice Management > Marketing and Communications > Client Retention

FA Retention Bonuses Surge

Your article was successfully shared with the contacts you provided.

Last year wasn’t just a banner year for the stock market, it was also a ripping time for financial advisors: Whether they stayed put or changed firms, brokers received a record amount of money. The trend continues in 2010.

An intensely competitive market for advisors prompted three of the four surviving wirehouses to offer retention awards packages to thwart an exodus to competitors, and the payments were generous.

Advisors bringing in $500,000 in commissions were offered 30% upfront money. At $1 million dollars in gross revenues, the upfront payment jumped to as much as 75%. Plus, firms have been offering backend awards for growth to everyone. We’re talking a significant amount of money.

As you would expect, the chieftains running the new joint venture at Morgan Stanley and Smith Barney were extending retention packages. Ditto Bank of America/Merrill Lynch. Only Wells Fargo refrained from offering its Wachovia unit retention incentives, although it just revamped its deferred comp to create incentives to raise more assets.

UBS also joined the retention-paying party – the first time in my 25 years as a recruiter that I saw a firm wooing its brokers when there wasn’t even a whiff of a merger in the air. But last year, it got a big black eye when it agreed to pay $780 million in fines for hiding offshore accounts of wealthy Americans – as well as to turn over the names of 4,500 tax-evading Richie Riches to the IRS. During that time the advisor headcount shrank to 7,000 from 8,000.

As we’ve written before, broker demographics continue to feed the demand for successful advisors. Despite the fact that wirehouse land has shrunk down to just a handful of major firms, there are an expanding array of choices for top advisors in the regional broker and independent/RIA channels. The market crash caused many advisors nearing retirement to leave the industry early and vaporized advisors with weaker practices.

The happy result: deals for high-end advisors have skyrocketed to record levels – more than 300% packages for those who can increase assets under management and meet backend targets.

Retention bonuses, while more modest, are part of the same picture. They are also less expensive for the broker-dealers than recruiting FAs from competitors. And they work, because many advisors view them as “risk free” offers – like a Treasury bill.

They mean that FAs can keep their seat at the table, get a few more dollars on the table, and all else being equal, know what to expect from their firm. When advisors switch firms, the risk rises appreciably in terms of client retention and what to expect at the new firm. They want to be paid for that.

Over time, the hefty payouts will become a double-edged sword once more. Retention awards will help the firms. But it will also make recruiting outsiders that much more expensive.

For me, it’s a walk down memory lane. Before the crash, I regularly used a calculator to measure the value of an offer versus the value of unvested stock and cash payments. Those days may be returning again.

Some of the payments were also in the form of golden handcuffs: vesting company stock. But when financial stocks went south in 2008 and early 2009, advisors readily shed those chains and just at a moment when their firms wanted them to stay most of all.

So, as the nation’s unemployment rate hovers around 10%, top advisors should count their blessings. My advice: whether you’re planning on remaining with your firm or hitting the bid elsewhere – take a few moments to sit back and feel the love.

Mark Elzweig is president of Mark Elzweig Company, an executive recruiting firm that has been working with financial advisors and asset management firms for 25 years.