Updated Tuesday, July 29, 2014 as of 6:55 PM ET
Blogs - The Smart Advisor
Outsized Recruitment Deals Are Liable to Fade Away
by: Mickey Wasserman
Wednesday, February 26, 2014
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The question isn’t whether or not FINRA and the SEC will require financial advisors to disclose the details of their compensation packages when they switch firms. The big question isn’t, “What will my clients think if they know how much money I’m earning to move my book of business?”  Similarly, spending your time wondering what the maximum compensation you can receive as a recruitment bonus -without having to disclose it- is frankly, a waste of time.

Those questions are soon going to be an exercise in futility, as all indications are that the days of enhanced compensation, big bonuses and upfront cash to attract top producers may be going the way of the dinosaurs.

As such, the only question on any FA’s mind should be “When is this coming, and should I make a change now before the big deals dry up?” Because it’s not a question of whether or not the big recruitment deals are going to lose steam, it’s just a matter of how quickly they will begin drying up.

The reasons are varied and go beyond any new disclosure rules, and the wirehouses are publicly speaking up about their difficulties fulfilling the massive compensation packages they guaranteed. Make no mistake, for the past couple of years even the powerhouse firms have faced an uphill battle to keep their extravagant promises. That means that the 300%+ deals (and closer to 400% if deferred comp is matched) days’ are probably numbered. The 150% upfront cash proposals are not likely to survive the change. The days of buying FA’s out of their current contracts are simply no longer feasible.

The major factor that has driven deals up to their current exalted levels is the intense competition for a shrinking talented advisor population. Supply and demand has always ruled. But here's the spoiler alert:  these days it doesn’t look like we are very far off from the major wirehouse firms making a pact of sorts, to cap the recruitment deals. Recruiting has proven to be incredibly expensive for all of the players involved.

The major firms do in fact speak to each other, as evidenced by the Broker Protocol Agreement (2004) designed to stop the legal battles and temporary restraining orders that ensued when brokers jumped to a new firm. Prior to this agreement, the legal bills from all sides were, if you recall, ridiculous.

Although mergers, acquisitions, and the fickle nature of the industry had, at one point led many of the big players to offer attractive retention packages, these days it looks as if those may be going by the wayside as well. Brokerages seem to not only be tired of chasing one another’s top producers, they are tired of having to pay hefty retention fees, and recent statistics show that they aren’t necessary any longer. Turnover is down at all of the wirehouse firms.  

At first glance this apathy towards retention and recruitment might look like it would lead to more turnover. Yet, there isn’t likely to be as much incentive to switch firms, if the monetary incentives just don’t exist anymore.

Please understand that recruitment deals will never entirely go away, but it's today's top deals that will be challenged. Whether the big deals start to dry up in 2014, or 2015, is anyone’s guess.  But rest assured, they are poised to decrease over the coming months and years.

 So if you’re an FA looking for a big recruitment bonus, it’s best that you make a move sooner than later. Because things are about to change, and the clock has already started ticking…with big recruitment deals living on borrowed time. 

Mickey Wasserman is founder and president of Michael Wasserman & Associates, Inc., a professional recruitment firm specializing in placing financial advisors and wealth management teams for the financial services industry.  For more information visit www.hotbrokerjobs.com or email Mickey@hotbrokerjobs.com.

 

 

(1) Comment
I have asserted, repeatedly, that the wirehouses have not only been supportive of this FINRA rule, but that they are, in fact, the instigators of it. The big wirehouses have needed cover to act in concert and FINRA has given it to them. Some of my other esteemed colleagues have offered compelling arguments that seek to deny that huge transition bonuses are going to go away. I respectfully submit, and clearly so does the author here, that they are wrong. The money being paid to lure advisors away from competing firms has gone from eye-opening, to stunning, to ludicrous. There is no way the firms can continue to justify paying out transition packages that too-often do not pencil out in favor of the firm. I don't agree that an advisor should essentially sell their book to another firm if transition money is the sole motivation for such a move. But Mr. Wasserman is right. If someone is going to do it anyway, they had better move quickly.
Posted by Ron E | Wednesday, February 26 2014 at 1:00PM ET
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