Adviser moves have plunged by more than a third this year.
The reason? Market upheavals and new regulations have had advisers thinking twice about making career changes, according to recruiters.
Only 163 advisers who managed $26 billion in assets have switched firms so far in 2016, according to an analysis by On Wall Street. That's a 42% drop from the same period in 2015 and down 22% from 2014, when a total of 555 and 481 advisers, respectively, switched firms.
"There's no doubt that the numbers are lower," says Mark Elzweig, a recruiter based in New York. "From a recruiting standpoint we got off to a slow start."
NAVIGATING UNSTABLE MARKETS
Quote"We are seeing the smaller [teams] expressing interest in either partnering with other advisers or in some cases going back to wirehouses," says recruiter Greg Noble.
The drop-off in recruitment activity was especially pronounced during the first few months of the year, recruiters say, as market volatility caused by falling oil prices, currency devaluation in China and a possible Fed rate hike demanded the full attention of advisers. Many who were considering a move had to put those plans aside to focus on managing client fears and protecting portfolios.
During unstable times clients are anxious enough so advisers hesitate to add another variable they have to worry about such as following their planners to a new firm, Elzweig says.
Rick Peterson, president of a recruitment firm based in Houston, says that while interest in making a career change remains strong, actual placements have slipped because many advisers who started the process were forced to step on the brakes to deal with market conditions.
"There were a number of moves slated for first and second quarter that got pushed out," says Greg Noble, general manager of Peterson's firm. "If you are an adviser managing client money, and the market is unstable and new regulations are set to go into effect, you want to make sure you are focusing on servicing clients above all else."
The book value of managed assets also fluctuates when markets are unpredictable, which may affect the strategic timing of advisers' plans to move, says Elizabeth McCourt, a recruiter and career coach based in Westhampton Beach, N.Y. "You don't want to move when your book is down, you want to do it when it's up."
The AUM of advisers who did move this year ranged from $27 million to $2.2 billion, according to an analysis by On Wall Street.
And yet the rebound in U.S. markets from lows earlier this year may be having a chilling effect, according to Mickey Wasserman, a recruiter based in Agoura Hills, Calif. and a self-described contrarian. Advisers and their clients are happy, and "no one wants to disrupt a good thing," he says.
CHANGING REGULATORY LANDSCAPE
In addition to a volatile macro environment, the Department of Labor's new fiduciary rule, which will take effect next April, is also dampening advisers' appetite for change. Recruiters say there's a lot of fear and uncertainty surrounding the new rule, and many want to wait for the dust to settle and evaluate what the final impacts will be before making major career changes.
Advisers at wirehouses and other large firms are more inclined to stay in order to tap the ample financial resources and back-end support they will need to meet new compliance requirements, says Noble.
Meanwhile, smaller RIAs and one to two-person independent teams are aggressively evaluating their options due to the inevitable cost increase that will accompany the new DoL rule, Noble says. "We are seeing the smaller shops expressing interest in either partnering with other advisers or in some cases going back to wirehouses."
Wasserman says that additional disclosure requirements mandated by the rule will also subject advisers to closer scrutiny from clients. He says that pressure will mount on advisers to justify their moves and articulate what specific benefits a new firm will offer to clients that the old one did not.
In Peterson's view, the real winners of the DoL ruling will be firms like Ameriprise and Raymond James, which can provide the flexibility independent advisers seek but also have the means to handle the new regulations due to their size.
QUALITY OVER QUANTITY
Not only are outside forces discouraging advisers from moving, a shift in attitudes with regard to corporate culture is also convincing more advisers to stay put.
McCourt says that more firms are focusing on retention and cultivating high-end advisers, instead of the traditional model of "trading cards" to meet numbers.
"Firms increasingly want to concentrate on what they have now rather than spend money outside recruiting in," she says. "They are doing more to build relationships with advisers and give them the support they need for growth." Recruiting has also gotten more selective, adds McCourt, driven by a greater desire for advisers with clean U4s, histories and good reputations.
Last month, UBS Americas President Tom Naratil unveiled sweeping changes at his firm. The wirehouse will reduce recruiting by 40%, pay select brokers more and give additional power to branch managers in a bid to improve adviser productivity and retention.
Elite advisers have also become much more discerning in choosing their next move and will not do so unless the entire team is comfortable with the transition process, says Greg Banasz, head of business development at Steward Partners, an independent firm affiliated with Raymond James.
"If they don't see a well-defined, well-articulated transition plan, and a long-term strategy that makes sense for the team and their clients, going into the next seven to 10 years, they are not going to move," says Banasz, who is a former Morgan Stanley manager.
Because of that, fewer advisers are enticed to move and when they do take that step, the process takes much longer. At Steward he says, a typical deal from introduction to close takes nine months to a year.
The firm has recruited several large wirehouse teams this year. An ex-Morgan Stanley team that managed $235 million in client assets joined Steward Partners last month in Manchester, N.H.
Despite the sharp drop in adviser moves thus far, recruiters say activity will pick up later this year now that markets are calmer and the majority of retention agreements have expired or will do so shortly.
"It's a temporary condition caused by volatility in early part of the year. Going forward, unless anything major happens again, more adviser moves will be happening," says Elzweig.