Demographics have led to desperation, and the next steps on that path have been towards the rich recruiting bonuses offered by wirehouses to productive advisors. Those tempting payments arent going away, but further improvements are highly unlikely, according to Mark Elzweig, who heads a New York-based executive search firm focusing on the asset management community.
The recruiting deal rubber band has been stretched out as far as it's going to go, he told On Wall Street. The reason, ironically, circles back to advisor demographics.
As Elzweig explained it, a shrinking and aging advisor population generated the bountiful bonuses. Citing numbers from Cerulli Associates, he pointed out that 41% of wirehouse advisors are age 55 or older while 11% are over age 65. For many of those producers, retirement is a viable option. There arent enough new advisors to replace those exiting the industry, Elzweig contended.
To attract the best of those left, wirehouses have offered bigger paydays. In the mid-1980s, Elzweig said, 30% of trailing 12 months gross production upfront was considered big money. Now, he reported, wirehouses pay anywhere from 100% to 150% in upfront signing bonuses while top performers may receive total packages reaching 300% in front- and back-end bounties.
Those nifty numbers have a catch, though, in the form of required long-term commitments. Major wirehouses have calculated that in order for them to realize a reasonable return on their current packages, recruits must produce for a minimum of nine to ten years, Elzweig explained. These deals were only three to four years in the mid-1980s; as late as 2007, they required seven-year terms. In order for the wirehouses to juice up their recruiting packages even more, they'd have to extend the length of their contracts.
Such extension may not be welcome. Even now, Elzweig said, there's a fair amount of advisor pushback concerning the length of these deals. Some advisors are willing to take less money for shorter deals, and others are seriously exploring other channels. How many 60-year-olds want to sign contracts for, say, another 15 years?
Regional firms might be offering smaller upfront bonuses (60%-100%, according to Elzweig) and total packages (up to 200%), but the commitments may be as short as five years. Independent firms and high-end boutiques also are in the recruiting mix. Todays advisors are in the catbird seat, Elzweig concluded.