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February 10, 2010 at 07:00 PM
The wirehouse executives still standing on Wall Street are touting peace in our time on the recruitment front. But that is probably wishful thinking.
True, an astonishing number of financial advisors jumped ship as the economy somersaulted over the past two years, leaving no firm unscathed. The massive displacement of 2009 — estimated at some 8,700 advisors among the top four wirehouses — couldn’t possibly take place again; it was the product of a unique set of circumstances.
Over the past two years, every major firm on Wall Street suffered a black eye of one sort or another. Many advisors felt that they needed to switch firms, even if it meant switching to another bruised entity; their clients preferred the less familiar damage.
Advisors also readily snatched huge deals to replace lost wealth: for some years and years of deferred stock compensation became worthless after the havoc of 2007-09.
So technically speaking, the survivors are correct: There will be less advisor movement this year than last. But that’s like saying Dresden isn’t going to lose as many homes in 1946 as it did in 1945.
Nonetheless, advisor movement will not be a rarity. As we’ve written before, broker demographics make stability a pipe dream: The declining number of solid advisor practices and the increasing demand for their services will keep deals at their current lofty levels for years to come and encourage broker movement.
And equally important, even as Wall Street’s mainline firms are shrinking, new ones are popping up keeping the competitive pressures in place.
Going forward, I would expect moves to be more judicious; the frenetic quality of the past two years has ebbed. That’s a good thing.
Firms are hoping that new retention packages will make advisors less likely to move. And, again, there’s some truth in that. But the retention packages are much smaller than deals to switch firms — it’s the difference between risk-free, hassle-free money and money-at-risk and all the anxieties that go with a move.
The typical retention package for top players is 75% upfront. Deals to move begin at 140% on the upfront portion; the total package, including backend requirements, can exceed 300% of production.
Advisors with less than $750,000 in production get handcuffs as well, but they are more like costume jewelry than real gold. For the moment, many top advisors who took the retention deals are pausing to take stock of their situations. The retention deals will not keep them from moving if they decide for any reason that they should move; if they have a good business, a competing firm will make them an attractive offer.
