4 Trends Reshaping Broker Recruiting

The report also notes that more traditional firms are distributing their products and capital markets capabilities to independent firms, providing the same level of access to which advisors in the wirehouse world have become accustomed.

Another sign of the thriving indie space may also be that wirehouse senior leaders are leaving their corner offices to get in on the action. According to the report, the most high-profile example is Greg Fleming, who left Morgan Stanley in 2016 after six years as chief of their wealth management unit, and in February 2018 took the reins of Rockefeller Capital Management.

3. With the reduction of outsize wirehouse recruiting deals, the playing field has been leveled.

The report notes how Morgan, Merrill and UBS — responding to Labor Department guidelines — brought down the high price of recruiting by lowering recruiting deals by almost a third in late 2016.

“Suddenly, the delta between what these top-dollar payers were offering and the economics of either independence or regional firm deals became much narrower — essentially allowing for an advisor’s choice to be based upon what’s truly best for the business and clients versus who was the highest bidder,” the report states.

The report also thinks these firms will become vulnerable to attrition. Because, as the report points out, advisors who signed retention deals in 2009 at Merrill Lynch or UBS respectively are now fully vested. Meanwhile, Morgan Stanley advisors who received retention deals as a result of the joint venture with Smith Barney in early 2009 will become free agents at the end of 2018.

“As more advisors become free agents, the big firms will likely attempt to tie them down again,” according to the report.

But, the report also thinks that independent, regional and other firms properly positioned could be the big winners.

“That is, firms willing to be creative and tap their deep pockets to come up with ways to help these prospective breakaways monetize in the short term and still capture the real, long-term benefits of being an entrepreneur,” the report states.

4. Consolidation of independent broker-dealers; more robust offerings in the RIA space.

Smaller IBDs have had difficulty absorbing increased regulatory costs, and as a result there’s been consolidation and compression in the IBD landscape, which Diamond Consultants expects to continue.

However, even more compelling than the continued consolidation of firms in the IBD space is the huge increase in the number of FAs recruited from the wirehouses to the IBD world. The three largest IBDs (LPL Financial, Ameriprise and Raymond James) saw a 42% increase in recruiting in 2017, according to an InvestmentNews report cited in the paper.

According to the report, the IBD model itself is evolving to better meet the needs of fee-based advisors who want access to an RIA platform but also want the continued support and resources their broker dealer provides. As a result, many IBDs offer advisors the ability to practice as an RIA hybrid, either on the corporate ADV or their individual ADV, thereby bridging the gap between the IBD and RIA spaces.

A noteworthy example is Kestra Private Wealth, which the report calls “an exciting anomaly in the landscape.” As a multicustodial RIA hybrid model, Kestra straddles the IBD, RIA and service provider worlds. Specifically built for wirehouse breakaways, Kestra Private Wealth offers a turnkey buildout of an independent office, a strong investment platform and integrated technology, plus ongoing support, including compliance.

— Check out 73% of Advisors Don’t Have a Written Succession Plan: FPA on ThinkAdvisor.