Advisors are on the move. The conditions are perfect – which is another way of saying the six-year-run of notching record gains in the stock market may be coming to an end.
Despite years of sky-high recruiting packages, advisors have been hesitant to move. Making money in a market that has returned nearly 200% since the lows of 2009 has been relatively easy.
Plus, firms have been handing out retention bonuses to keep everyone right where they are.
In such a good business environment, why move?
2015 could be different. The S&P 500 is down about 2% this month, and volatility – long dormant – is roaring back.
Anyone with even a shiver of discomfort at their current firm has every reason to at least take a look at what cross-town rivals have to offer. Odds are good that advisor pay, based on trailing 12-month commissions, is peaking. That means recruiting packages won’t get any better than they are today.
It’s advantageous for advisors to move when business is strong. Moreover, investors are likely to have had a positive experience with their advisors in these rising markets and are therefore easier to shift to new firms.
Advisors are well aware that clients have notoriously short memories. Once the market turns, just a few months of poor performance can sour them. So right now, the rewards for moving are the greatest, while the downside risks are at a minimum.
The surge in market volatility is alarming many advisors.
The market began the year with five consecutive down days, dropping 4%. That’s the worst start to any year since 2008. There’s a pervasive feeling of unease amongst both advisors and investors. Many view recent market gains as unsustainable, propelled by low interest rates rather than solid corporate earnings.
The Federal Reserve is promising rate hikes in the not-too-distant future. And there are concerns about a potential global slowdown.
Volatile markets are emotionally draining for both advisors and clients. Advisors often spend a huge chunk of time reassuring clients and dissuading them from making rash decisions that aren’t in their long-term interest.
The prospect of a more difficult year ahead, in which trailing 12 numbers may not continue to move up, increases the attractiveness of signing bonuses for reps. Generous recruiting packages can be a welcome cash cushion to advisors in difficult market environments.
Wirehouse retention deals rolled out in January 2010 are expiring soon. Technically, many amortize (or end) by 2019. The awards ranged from 30% to 75% of the previous year’s gross production. One-ninth of the deal is forgiven each year.