Wirehouse Recruiting Packages: No Smoke and Mirrors

A recent trade magazine article asserted that large wirehouse recruiting packages are in essence, little more than a nefarious scam.  

As the author tells it, brokers are lured to competing wirehouses with promises of 300% to 350% packages that require achieving unattainable asset and production goals.

Instead, these advisors find that they need to boost their gross, because they’re on the hook for big tax liabilities. 

In this rope-a-dope-type hustle, hapless advisors are bamboozled into signing multi year contracts for the same amount of money that they could formerly have gotten in half as many years.

In other words, some of the largest and most savvy teams that moved in the last two years were duped by heartless wirehouse executives. Who knew?

Most hiring authorities in the independent and RIA space understand how tough it is to compete with the big money that the wirehouses are paying.They usually don’t claim that there’s any flaw in the deals themselves.

In 2010, Cerulli estimated that 40% of wirehouse advisors who jumped ship ,joined other wirehouses. And only 14% signed up with independent broker dealers or RIA’s, while 22% joined regionals, and 18% joined banks.

In our experience, the lion’s share of wirehouse brokers who opted for independence were producing less than $500,000.  As such, they were unencumbered by retention awards ranging from 30% to 75% of trailing 12 months gross production.  

The greater the production, the more likely that the advisor would move to another wirehouse.  The major wirehouses claimed that “regretted attrition” amongst   top advisors and advisor teams was less than 5% last year.

More wirehouse advisors are considering independence. But as we’ve written before, the California Gold Rush this is not.

The wirehouse share of the advisor marketplace may shrink, but they’ll always be the 800-pound gorilla in the room.

Brokers like their winning combination of turnkey environment, household name, lots of capital, cutting edge platform and big signing bonus.

It’s little more than wishful thinking when senior staff at independent firms repeat tired mantras like “the wirehouse model is broken”.

Let’s look at how the deals themselves are crafted.