Cloudy 2014 Outlook Prompts Advisor Movement

The 2014 Annual Elzweig Recruiting Outlook

Recruiting among financial advisors is off to a fast start in 2014. The reasons are two parts joy and one part fear: 2013 was great but 2014 isn’t looking as bright. Many are thinking: Now is the time to take advantage of a great trailing twelve-month commission stream. Who knows what this year will bring?

Clients are happy, which encourages advisors to feel more confident that they will follow them to new firms. Stellar production coupled with happy clients makes this an optimal time to move.

Long-term trends continue to favor advisor movement anyway. The advisor population is both graying (average age = 51) and shrinking. Cerulli Associates reports that more than one-third of financial advisors are planning to leave the business in the next 10 years. Firms  can’t replace  advisors as fast as they leave. Trainees take a long time to bring up to speed, and most flame out. For experienced advisors who hang around, recruiting packages are practically guaranteed to remain sky high. It’s the law of supply and demand.

Retention packages aging. Back in 2010, wirehouses offered lucrative retention packages to  $500,000 plus producers. Most of those contracts were nine years long. As these obligations continue to age, so does the financial penalty for jumping to a new broker-dealer. For wirehouse advisors, taking a recruiting deal from a competitor makes more financial sense with each passing year.

‘Smaller’ producers more valued at regional and independent broker-dealers. Advisors grossing less than $500,000 are second-class citizens at most major wirehouses. Many are tired of being dissed. They’re turning to regionals and independents, who value their production – and offer deals, higher payouts and greater access to home office staff. Larger producers tired of the wirehouse scene are also signing on.

In the independent channel, advisors with smaller, shaky broker-dealers are increasingly joining more well-capitalized broker-dealers with broader and deeper resources.

Fee-only is winning over traditional advisors. The appeal of the RIA model is growing as well. As advisors do more fee-based business, many are shedding broker-dealers entirely and are starting their own RIAs or joining existing ones. Independent RIAs enjoy an 100% payout and pay lower ticket charges.

Succession planning. Many advisors in their 50s and up are moving as part of their succession planning. They are joining new firms that pay them signing bonuses and then preparing to hand off their books to younger advisors at the conclusion of their deals. This way they can capture two bonuses: one for joining the firm and one for the gross done in their book after they retire.