Even with rumblings that Wall Street firms could brace for cost cuts and layoffs this summer, competition for top wealth management talent is poised to remain strong.
Reports emerged in June that lingering doubts about the speed of economic recovery topped with profits that still fall short of pre- crisis levels could force banks to retrench. But members of the wealth management industry, from top firms to industry recruiters, still cite demand for top talent.
Since the financial crisis, there has been an emphasis on paying top dollar to attract and retain talent despite the focus on the bottom line. For the wealth management industry, where top producers bring in the most client assets, firms cannot afford to let slide their grip on their best producers.
That competition led to retention packages from top firms, particularly Bank of America Merrill Lynch and Morgan Stanley Smith Barney, in 2008 and 2009. But as time progresses, the hold those retention packages have is expected to loosen. And as new recruitment packages outweigh what financial advisors could owe to their current employer, a new wave of movement could start in 2012, according to a June hiring survey of 151 financial advisors by Boston-based financial services research firm Aite Group.
Of the wirehouse brokers Aite surveyed, 45% said they plan to break away from their firms in the next 18 to 24 months, with a more than 25% chance of following through on those plans. At the same time, wirehouse firms have increased the number of brokers who plan to stay at their firms to 34%. Non-wirehouse brokers determined to leave their firms came in at 32%.
"We've seen a trickle, certainly, and I think that's a warning sign for large firms," Aite's Research Director Alois Pirker says of recent advisor moves.
"The producers are extremely keen to change and, particularly with the large sign-on bonuses throughout The Street, they are very keen to take advantage of them," Pirker adds. "So the retention packages, while they have helped calm down the attrition, they haven't resolved the underlying issue. It seems that 2012 is going to be the year where payback of those packages is small enough that the packages lose their effectiveness. And paired with the sign-on bonuses that the competing firms are offering, [it's] a lethal combination."
Consider the most recent news of advisor moves. In June, Bank of America Merrill Lynch lured Morgan Stanley Smith Barney financial advisor David Massey, who previously had $1 billion in assets under management, to its force in Carlsbad, Calif. That hire came as Bank of America Merrill Lynch touted seven straight quarters of growth for its total number of advisors.
UBS said it hired 38 new financial advisors in June, drawing from firms including RBC Securities, J.P. Morgan Chase and Morgan Stanley Smith Barney.
Wells Fargo and Morgan Stanley Smith Barney also selectively added new advisors. Wells Fargo took on Morgan Stanley Smith Barney advisor Mark Wieland to its Washington Crossing, Pa. office in June. Meanwhile, Morgan Stanley Smith Barney added three new advisors, including Peter Chen from Charles Schwab, who will be based in San Francisco, Esteban Formoso from UBS in Coral Gables, Fla., and Arturo Perret-Gentil, also from UBS, in Boca Raton, Fla.
Morgan Stanley Smith Barney's hires come as the firm admitted in June that it may continue to trim low-level producers after eliminating around 300 advisors in the first quarter.
"It's been a steady and consistent conversational pace that we've had with recruits in the marketplace right now," says Barry Krouk, a managing director focusing on talent development and recruitment at Morgan Stanley Smith Barney.
The number of new advisors and trainees or total assets under management that the firm is targeting with new recruits has not been disclosed. But the hype surrounding the battle for talent from independent firms has not had a meaningful impact on the firm, which has increased productivity with new hires, Krouk says. Many of Morgan Stanley Smith Barney's conversations with potential recruits focus on the fit between the firm's platform and services and an advisor's clients. The firm is still very much a draw for advisors, both from wirehouses and independent firms because of the breadth of its resources and brand-name recognition, Krouk adds.
"The amount of money that we'll spend on technology alone this year for our overall platform is greater than many independent firms have spent in history," Krouk says. "I would go further to say that in the post-Madoff era, in the post-Ponzi scheme and other types of nonsense that's happened in the industry, I think clients are looking for the safety and security of a larger brand-name than an individual running [his] own shop."
One of the firms looking to challenge the traditional brokerage model is Chicago-based HighTower Advisors. That firm is expanding nationally through a roll-up strategy targeting the top two or three teams in an area with more than $300 million in assets under management.
HighTower, which typically offers teams a stake in the firm, was fortunate to come to the market in 2008 when the financial crisis hit, Mike Papedis, managing director of business development at HighTower, says. "What it did was take a solid, good idea and made it a great idea," Papedis says. "Obviously when we opened our doors in fall of 2008, the idea and concept was created years prior. It just helped us accelerate our momentum and growth."
HighTower plans to continue to grow beyond its 23 public teams to new cities, including Atlanta, Boston, Los Angeles, Minneapolis, San Diego, Scottsdale, Ariz. and Washington, D.C.
Despite arguments to the contrary, HighTower's model does have technology on its side, Papedis says, as custodians have poured more money into serving that market. HighTower's model can also offer more products to choose from than wirehouse brands such as alternative investments and separately managed accounts, Papedis says.
"What we're finding is that the high-end advisor teams inside the major wirehouses care deeply about their client relationships, [and] are tired of the structural conflicts that exist in their ability to serve the client," Papedis says.
Competition for talent means that advisors have more to choose from when picking a model that best suits their practices, recruiters say. But as large wirehouses need to work harder to distinguish their brands from each other, it makes sense that more financial advisors would default on price and look to move, says Danny Sarch, president of the White Plains, N.Y.-based advisor recruiting firm Leitner Sarch Consultants.
When the Aite Group study was first released in June, recruiter Mindy Diamond recalls that it brought a smile to her face. That's because the statistics reflected what her Chester, N.J.-based firm, Diamond Consultants, has seen for the past six months. "I don't think it will be quite as big [as the last wave], but I think the spigot is opening for sure," Diamond says. "Our conversations have been infinitely more meaningful. We've had many more meetings set up, advisor to firm."
While signs of a true wave of movement might not show up until 2012, wealth management firms would be wise to prepare themselves early, Aite Group's Pirker says. "Folks who are not going to be as good at retention of their advisors are going to run the risk of losing market share and basically having to buy different advisors of similar grade, similar quality, at 300% deals," Pirker says. "It's super expensive. There's opportunity, but there's also an opportunity to miss out."