In the Wall Street jungle, advisor headhunters could be an endangered species.
Sounds far-fetched? Just listen to one top veteran recruiter:
“The recruiting model is essentially dead on the Street. Our firm is moving aggressively away from it. It’s outdated and no longer has [relevance] to what advisors are looking for.” This from Eric W. Gershman, president of 30-year-old Consultants Period, Ltd. He has worked for every major brokerage and moved large teams producing as much as $500 million-plus.
Last fall Gershman founded DealMentors.com, an online resource that helps FAs negotiate their own deals without recruiters.
Indeed, at a time when advisors are, increasingly, bypassing executive search consultants — who typically take a big chunk of the firm-switching advisor’s pay package — a mini industry is sprouting to help FAs conduct their own searches and negotiate contracts.
Much of the advisor “musical chairs” of last year has now abated. In 2009 as many as 22,000 FAs changed firms, according to Discovery Database; more than 8,000 of the total advisors in motion last year were wirehouse FAs, half of whom went to other wirehouses.
Many were big-producing teams who snagged lucrative deals and are now staying put, at least for a while. A sizeable part of today’s market is in $300,000-to-$600,000 producers, according to Mark Elzweig, president of Mark Elzweig Executive Search Consultants, in New York City (see sidebar).
In addition to Gershman with his innovative web-based service, a number of securities industry attorneys not only are negotiating advisor contracts, as is traditional, but helping FAs decide on the best channel of operation and even the specific firm.
“I function as a career coach-lawyer-trusted advisor in many of my deals,” says attorney Steven Eckhaus, a partner in Katten Muchin Rosenman, in New York City, where he is chair of the firm’s executive employment practice. “I think of myself as a ‘legal therapist’! Lots of clients come to me because they don’t have anyone else they can talk to about the career issues they face. Our confidential conversations have legal privilege.”
The emerging trend of advisors rejecting recruiters and dealing direct with branch managers is yet another shift triggered chiefly by the financial crisis and brokerage firm consolidation. What was once a seller’s market has turned into a buyer’s market. Managers are pocketing big bonuses to recruit on their own. Further, because advisors already know managers in their communities, they have little need for introductions — a headhunter’s main contractual obligation.
The upshot? Many now perceive recruiters as middlemen who add no significant value.
“Some recruiters are very experienced and probably can render good advice; but since most are working for the firm, they’re not out there discouraging you [exactly] from what the managers are trying to sell you,” says Steven J. Insel, a partner in law firm Jeffer, Mangels, Butler & Marmaro, in Los Angeles, and one of Wall Street’s biggest deal makers.
“Do you ask a used-car salesman how good the car is — or do you bring in a mechanic who has no conflicts of interest?” Insel remarks.
According to Gershman, who is based in Stowe, Vt., the strong trend to branch managers contacting advisors direct is unprecedented.
“It used to be so difficult to move an advisor that firms would employ recruiters to do their digging. But today there’s less firm loyalty [from advisors], and managers are getting bigger bonuses to recruit. Firms are in a race for net new assets. [One] way to get them is by recruiting.”
Another reason FAs are avoiding recruiters is that current deals aren’t as rich as they had been, particularly the up-front signing bonus/loan portion. Moreover, today, in order to receive their total package, an advisor must deliver more.
“Deals are skinnier, so the financial advisors don’t want to split them with a recruiter. We’re seeing more advisors negotiating deals on their own and then coming to a lawyer for advice to help them close,” says Rogge Dunn, with Dallas law firm Clouse Dunn Khoshbin. He has moved some of the industry’s biggest teams.
A New Model for Doing Deals
DealMentors.com’s main thrust is to help boost the offers that advisors — typically those in the business at least five years — have in hand. No introductions are made. The website serves up a host of information and tools to assist FAs in negotiating their own deals, including a comparative look at major pay packages from big firms like Bank of America Merrill Lynch and Morgan Stanley Smith Barney. All that comes free of charge.
But “we aren’t doing DealMentors to be nice guys; we’re doing this as a profitable model,” says Gershman. That is, beyond the do-it-yourself means, the resource offers one-on-one consulting at $350 an hour. There is no minimum — and there are no introductions.
“We certainly hope advisors will employ our consulting services to help negotiate their deals upward,” Gershman says. “There are scores of ways to improve these offers. The biggest pitfall in the transition process is getting a sub-par deal.”
DealMentors’ consulting-fee structure is similar to the hourly way attorneys charge FAs for their services.
“It’s incredibly stupid for an advisor to negotiate their own move. Would I go out and try to be my own dentist?” says Insel. “When you make the biggest decision of your commercial life with many, many millions of dollars involved, you shouldn’t be cheap.” The lawyer typically charges from $5,000 to about $25,000 per deal.
Insel, who says he acts as a career coach, prides himself on knowing “a lot of tricks” of the trade, such as making sure that no “payout haircuts” lurk and that big producers are permitted to keep their middle-market clients. As a tax expert, he knows which firms “have a lot of terrible stuff buried in their stock-option plans” too.
Customized negotiations are an Insel key strength. Once, with Mormon clients, for example, he made certain that, were they to be called away on senior missions, their vesting would be frozen rather than lost.
Another new-wave firm, MarketCounsel, in Englewood, N.J., specializes in helping advisors go independent.
“The traditional brokerage recruiting firms haven’t made a significant amount of headway into the independent space. Only a handful are playing that game,” insists Brian Hamburger, founder and managing member.
Usually for a fixed fee starting at around $10,000, MarketCounsel helps with all aspects of the transition process, especially the legalities of leaving the existing firm and the regulatory intricacies of setting up on one’s own. These consultants have even developed discreet strategies to deal with the issue of raiding, which often crops up with the move to independence.