Despite the possibility of a double-dip recession, advisors continue to seek career opportunities and staff for their firms. Openings for advisors do exist, and retention has become an issue once again as the financial industry cautiously looks to grow despite volatile markets and a slow-growth economy. AdvisorOne reviewed some recent surveys, news and advisor market metrics to see where the opportunities lie and which factors control them. Here are a few.
Advisory M&A: Less Is More
In late August, Pershing Advisor Solutions released the latest edition of its “Real Deals” quarterly look at mergers and acquisitions in the advisor industry. In collaboration with FA Insight, which AdvisorOne partners with on its annual advisor benchmarking study, the latest Pershing report found that while M&A activity in the advisory industry fell slightly in Q2, deals were larger and total assets exchanged increased. Only seven transactions targeting retail-focused RIA firms with at least $50 million in AUM or $500,000 in annual revenues occurred in Q2 2011, down from Q1’s 11 deals. Q2’s seven deals are also fewer than took place in each of the previous four quarters.
Firms acquired in Q2 2011 had a median of $800 million in AUM, twice the median amount of assets exchanged in Q1. Nearly half the purchases included RIAs with over $1 billion in assets; total assets exchanged were $8.5 billion, up from Q1 just over $6 billion.
Q2’s most surprising trend was the notable increase of bank and trust acquirers.
On the Road Again
Mark Elzweig, president of boutique search firm Mark Elzweig Co., says “advisors are optimistic and remain confident that their franchises are very solid.” He also anticipates 2012 to be a year when many more wirehouse advisors will change firms—a big contrast to 2010 and 2011.
There is already a great deal of activity among independent advisors, what with a record number of smaller broker-dealers closing largely because of the onslaught of new regulatory requirements that skew the market in favor of larger firms.
Though Elzweig focuses on recruiting wirehouse and regional FAs, he notes: “When we’re aware of quality people at smaller firms, we are most definitely approaching them.”
The Carrot …
Bank of America-Merrill Lynch is working on new pay incentives to motivate advisors to zoom in on wealthier clients. Those incentives support advisors and teams with 80% of their business with clients that have $250,000 or more in investable assets.
Also, advisors’ books of business should include 150 households or less. Other objectives require at least 98% client retention, 35% of client assets in fee-based accounts and clients using several products, such as both retirement planning and bank products.
Merrill now has some 15,700 advisors; the new plan appears to dovetail with expanding Total Merrill, its platform for mass-affluent clients, those with between $50,000-$250,000 of investable assets. These plans include doubling advisors servicing this client base—from 500 to 1,000 this year.
… And the Stick
Morgan Stanley is taking the other approach: shedding advisors.
Three months after firing about 300 advisors, Morgan Stanley is poised to get rid of more lower-producing FAs—or “prune underperformers.” In early March, it laid off between 200-300 lower-level advisors: lower-producing advisor trainees with three years or less of experience and $25,000 yearly fees and commissions, and those with five years or less of experience and $75,000 a year in production.
And Morgan Stanley may not be the only wirehouse that will resort to trimming advisors in 2011 and other aggressive moves to boost sales and overall financial results, other experts say. According to Elzweig, “It’s no longer good enough for a new advisor to hit the ground running—they’ve got to hit the ground flying and at warp speed.” Technology Closes Doors, Opens Windows
Popular wisdom: Increased use of software and Web platforms in today’s advisory practices is performing many of the functions advisors used to hire junior advisors to do, leaving them with fewer jobs to fill throughout the industry.
Reality: Greater reliance on technology in the advisory world is creating more opportunities for young advisors than ever before.
Efficiencies created by digital technology do reduce the need for some jobs, but not the jobs young advisors are trained to do. Young advisors can now do much more in portfolio management, client management, client communications, financial planning, compliance and in the back office.
And they can hit the ground running with most platforms that advisors use, thanks to extensive technology training in many of today’s collegiate financial planning programs.
People: The Critical Ingredient for Success
FA Insight’s latest report on the advisor universe, The 2011 FA Insight Study of Advisory Firms: People and Pay, found that, driven predominantly by sustained appreciation in security markets, virtually all performance indicators for advisory firms trended upward in 2010.
In an article relaying the study findings in the September issue of Investment Advisor, FA Insight says that as firms grew again, so did their need for people, according to the report, with people-related costs increasing from 77 cents of every dollar in average expenses in 2008 to 80 cents in 2010. People will continue to be a priority in 2011, with the typical firm projecting to expand from 6.1 to 7.4 full-time equivalents (FTEs).
For advisory firms, people represent the critical ingredient for growth, according to FA Insight’s Dan Inveen and Eliza De Pardo. Building value and effective succession planning are also critical. Achieving these objectives, however, will require firms to shore up weaknesses with regard to how they deploy and develop staff. Reflective of growing labor scarcity, compensation levels are on the rise again, retention is at risk and the source of the next generation of firm leaders is unclear.
A reminder that on Labor Day, and every other day, advisory firms’ success starts with their people.