Why Are So Many Advisors Leaving Wirehouses?

In a trend signaling further shrinkage of the wirehouse financial advisor population, FAs are leaving the big firms for greener pastures at beckoning regionals and small national firms. Higher payout isn’t the only allure: The mainly lower-level producers are seeking venues where they will be more valued and respected. But big producers are part of the migration, too.

It is a trend that has deep implications for the future of both wirehouses and advisors, as ThinkAdvisor’s interviews with recruiting and compensation experts reveal.

In the last five years or so, lower-level producers have seen their payouts decline significantly, along with the amount of support they receive from their wirehouse firms. These FAs aren’t being pushed out, but they don’t get much love either. In discouraging them, the wirehouses — Merrill Lynch, Morgan Stanley, UBS and Wells Fargo — have given the clear impression that they’d be happy if the FAs would leave to make room for more successful producers. In many cases, the feeling is mutual — and that is intensifying, as the growing trend shows.

“The smaller firms have benefited from the bigger firms concentrating on the bigger producers,” says Danny Sarch, president of Leitner Sarch Consultants, executive recruiters based in White Plains, New York. “The lower-producing advisors have had their payouts [reduced] in recent years and have fewer and fewer resources [available to them], which effectively forces them out. The firms don’t treat them well. They’re not wanted.”

Sarch continues: “It’s a question of when the advisors’ pain — frustration — is strong enough for them to say, ‘I really need to go somewhere else. Why stay here?’”

They are moving to what recruiters term smaller national firms, like Raymond James and Ameriprise Financial, and to regionals, such as Janney Montgomery Scott and Stifel Nicolaus, as well as to bank brokerage units of, for example, JPMorgan Chase and Citi, and to neighborhood banks.

Big Producers

The shift to smaller firms is not limited to lower-producing advisors. It is also occurring with big producers, expanding the trend of wirehouse advisors going independent or switching to the RIA channel.

“It’s not only advisors doing $500,000 in production — who are more tolerated than loved — that are moving to regionals. These firms, which allow wirehouse advisors to keep their business model and that pay attractive recruiting deals, have garnered many top producers,” says Mark Elzweig, founder of an eponymous executive recruiting firm in New York City.

Elzweig continues: “The regionals and small nationals have upped their game in the kinds of resources they have and the type of producers they’re attracting. They’re perceived as more user-friendly [than wirehouses], and the recruiting packages are certainly quite solid.”

But the shift isn’t always about money.

“The biggest change is that at the higher end, people aren’t moving just for financial reasons — and the wirehouses can’t get their arms around that. They just don’t get it,” Sarch argues.

The impact of the trend is yet another comedown for the big firms, who have been steadily losing advisors to the independent and RIA channels since the global financial meltdown.

But the more things change, the more they stay the same when it comes to wirehouse general M.O., now and going forward.

“The wirehouses have so much overhead that they will continue to focus on the larger producers and give the smaller ones reasons to leave. Most of them will choose to tuck themselves into smaller firms, where they are welcomed, receive higher payouts and get better support. That trend is consistent with millennials, who are less interested in taking risks and more concerned about quality of life,” says Mitch Vigeveno, founder and CEO of Turning Point, Inc., an executive search firm near Tampa, Florida. He was previously vice president of branch development for Raymond James’ independent advisor business.

‘Penalty Box’

Certainly, a chief reason for lower-level producers exiting wirehouses is dropping into the “penalty box,” where they are financially punished for less-than-desired production levels. Two firms that use this system are Morgan Stanley and UBS; Wells Fargo does not, according to Andy Tasnady, whose consultancy, Tasnady Associates, in Port Washington, New York, advises firms on FA compensation plans. Most regionals do not have wirehouse-like production-level hurdles that FAs must meet, he says.

Merrill Lynch eliminated its penalty box as of Jan. 1, a change that effectively raises compensation for lower-level producers. 

“Merrill Lynch has removed the motivation for lower-end producers to leave,” says Tasnady. This has particular impact on “advisors who are on the way up. They’re the ones that have been ripe to be cherry-picked by regionals and banks, and are the most valuable. They’re new in their careers and hungry. Now they won’t be encouraged by the penalty box to seek a job elsewhere.”

Another reason — a new one — for wirehouse FAs’ and other advisors’ attraction to regionals and smaller nationals is that two of the big firms, Morgan Stanley and UBS, have left the Protocol for Broker Recruiting, an agreement that makes it easier for advisors to depart.