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Practice Management > Building Your Business > Recruiting

Five Questions for a Top Recruiter

By Janet Levaux

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Research: What’s your view of today’s recruiting market for advisors?

Diamond: It will be a very robust recruiting market.

It can’t be as robust as 2009, because 2009 was so incredibly unprecedented. But in 2010 we’re seeing activity on the part of a lot of thoughtful advisors, advisors not just jumping in for greatest check, but advisors who are really trying to figure out what’s best for themselves and for their clients long term.

What factors will most important in this year’s recruiting market?

The reason that the 2010 recruiting market will be so robust is that we have many things happening at once. It’s really a dizzying array of choices.

The wirehouses are back to their recruiting wars, and they are paying 300 to 330 percent of trailing 12 months’ sales, though it’s not all upfront, but over time. And these are the biggest deals we’ve ever seen.

We’ve got the independents in on the act. The broker-dealer and custodial organizations are really providing advisors with opportunities for independence with advisors who are looking for more independence of any kind.

If someone wants to open an office, the custodians have gotten real great at giving them the tools and resources the advisors who want to make this happen. Some advisors may want to plug into a group that’s already independent, and others want to become part of a consolidator-focused group, like Focus Financial or United Capital Partners.

The point is that there is a lot of choice, and there are a lot of frustrated advisors who are always looking for a better way of doing things. And this is why I expect 2010 to be a robust recruiting year. And I think the recruiting environment in the first seven days tells a lot, and it’s been a very busy first seven days.

What are recruiting packages looking like in 2010?

The wirehouses —Morgan Stanley and Bank of America/Merrill Lynch, in particular —are paying about 330 percent in total over five years, 120-140 percent in cash upfront and up to five bonuses, nearly all cash. Morgan Stanley is all cash; Merrill includes some stock.

These are really deals that are structured for the growth-oriented advisor. Though 140 percent in cash upfront is a lot, it’s not necessarily enough to make an advisor move. Unless the advisor is in a growth mode and has a really good shot of hitting the backend bogies, which means you have to be at certain levels of assets and production at the end of years one, two, three, four and five, these are not deals that make sense.

UBS is now led by Bob McCann, who has said that he didn’t want UBS to be offering the biggest deal on the street, which it isn’t. It is not as competitive as the Morgan Stanley deal.

It’s offering top first and second-level quintile producers 130 percent cash upfront. There are also four asset-based bonuses offered for the first four quarter of the first year.

The first one is 55 basis points of whatever assets you have at the end of the first quarter; the second is 50 basis points of what assets you have at the end of the second quarter; 45 basis points for assets at the end of the third quarter; and 40 basis points for assets at the end of the fourth quarter.

At the end of month 24, if you are at 85 percent of your recruited trailing-12-months production, you get an extra 50 percent of your actual UBS production. Plus, at the end of month 36, if you are at 100 percent of your recruited trailing-12-months production, you get 50 percent of your actual UBS production.

Thus, in total, UBS is offering a 280 percent recruitment package.

Wells Fargo has never wanted to be the biggest deal on the street. The firm is offering 200 to 225 percent as its maximum recruiting deal. Their sweet spot is the $500,000 to $1 million producer.

How do you expect these deals to affect the recruiting market in 2010?

The deals certainly will have an impact, especially if an advisor is wirehouse minded. A deal that is 300-percent-plus will likely entice of lot of these brokers and account for a lot of robust activity.

But there is also a large group of advisors that are independent minded and that are disenfranchised with the wirehouse model in general. They are looking for more autonomy. Thus, even if the deals were 700 percent, they wouldn’t be going anywhere [within the wirehouse channel].

This could mean creating their own RIA… or plugging into an RIA that’s already been created. And for others it means the independent channel or the aggregator model in wealth management. There’s also the quasi-independent model, like at HighTower Advisors, which is an employee-owned firm.

The point is, again, there is really a lot of choice.

Overall, is 2010 really going to be that different from 2010?

We saw a lot of quality, multi-million-dollar advisors becoming interested in the alternative platforms in 2009, though they didn’t always pull the trigger. Now, there’s attention to such alternatives and to independence —including coverage on the front page of “The Wall Street Journal,” that means more credibility for the model and to those who are considering it.

In terms of those who I am working with, who are producing $1 million or more in yearly sales, 95 percent of these advisors are exploring the independent space while exploring the wirehouse space. Maybe 80 percent will stay in the wirehouse space, and 20 percent will go independent. But that, in my view, is 20 percent more than would have gone independent last year.

For the wirehouses, as more of the large teams become breakaway brokers and go independent, the more seriously it will be for the wirehouses to respond to this competition. They won’t have a choice.

What appeals to advisors that are thinking about leaving the wirehouses and going independent, this means focusing on entrepreneurship and freedom.

The wirehouses will have to better demonstrate to prospects that the individual markets for what a local complex manager or area manager is responsible for is as entrepreneurial an environment as an independent broker. They will need to show that these people are empowered to make decisions on the ground, as are their advisors.

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