Where elite advisers are flocking to
As seen in Financial Planning.
Forget too big to fail. For adviser Larry Watts the wirehouses are too big to care. At 60, he decided Morgan Stanley was stifling his career. Watts says he wanted to focus his attention on clients, not navigating bureaucracy or worrying about changes to a compensation plan.
In short, it was time for a move.
But where? As an industry veteran of 33 years, who generated over $1 million in annual revenue, Watts had plenty of options. However, he quickly boiled them down to just two: go independent or go to a regional broker-dealer.
Although data compiled by On Wall Street shows adviser moves are down for the year compared to 2015, plenty of advisers are still looking for greener pastures—and many are looking in the same places as Watts. At least 189 advisers have switched companies this year, representing about $31 billion in assets. Perhaps most strikingly, independent firms and regional broker-dealers are increasingly appealing options among top talent, according to industry insiders. In fact, 14 of the 20 largest moves this year involved advisers going independent or joining regional broker-dealers, according to OWS data.
Like Watts, these advisers are looking for better payouts, different corporate cultures and more flexibility to run their practice as they see fit, recruiters say.
THE GOLDEN SUNSET
Make no mistake, some decisions are about money. Rob Blevins, president at recruiting firm Rowlette, explained one technique that can be a way to double the value of a buyout. He gave the example of a 72-year-old adviser who left one regional firm for another, signing a 3-year deal and bringing his junior partner with him. The younger partner signed a longer-term deal and will buy out his partner's share of the business when the senior member retires. They both received payouts to move and the senior partner will receive additional gains from the sale of his share of the business.
For advisers approaching retirement, eschewing a firm-offered client transition program can bring substantial returns, says Brian Neville, partner at the law firm Lax & Neville. Shopping around and finding a different company to work for can result in packages that pay "well north of two and generally three times as much” as firm-offered programs. He adds, "The entrepreneurial aspects of the different models have made the options available to the elite [advisers] much more viable."
There are tax considerations to factor as well. You can't sell what you don't own, points out Blevins. Joining an independent program allows retiring advisers to monetize their books of business; taxes on the transaction are recorded as capital gains instead of ordinary income, according to recruiters.
NOT ALWAYS ABOUT THE PAYCHECK
Yet for a number of elites, switching firms is more about refocusing on clients than swapping paychecks. Financial adviser Robert Voorhees, 58, recently left RBC, where he was generating more than $1 million in annual revenue, to go to regional broker-dealer Stifel. He says he felt his former employer was becoming more focused on selling products to its clients than providing them with guidance.
He says there are plenty of advisers like him, who want to do more wealth management and less worrying about selling bank products. "There's a clear trend where the wirehouses are losing advisers," he says. As a former Wells Fargo adviser via its acquisition of A.G. Edwards, Voorhees says the one-size-fits-all model, where "it's managed to the lowest common denominator," doesn't work well for high-producing and long-tenured advisers.
The wirehouses dispute that characterization, saying they continue to be home to much the industry's top talent. A Wells Fargo spokeswoman points to a recent deal with Credit Suisse in which the wirehouse picked up more than 110 elite brokers, according to people familiar with the moves.
A Morgan Stanley spokeswoman says "attrition in the top quintile" at the firm has remained at a constant "low level." UBS was unable to provide details on trends among elite advisers, but it recruited approximately 100 Credit Suisse brokers last year. And a Bank of America Merrill Lynch spokeswoman says their "experienced adviser turnover continues to be at historic lows."
As he prepared to make his move, Voorhees says he tried to make the transition as "painless" for his clients as possible. "I wanted to take control of the change, rather than let the change happen to me," he says. "I may have done it sooner, but I don't think I would've done anything differently."
Advisers looking to make a move have more options to pick from, thanks to the rapid growth of independent, regional and so-called super regional firms, say recruiters and lawyers. Raymond James' rapid expansion in the Northeast has opened up "a new option at the elite level that just didn't exist before" says Neville. "Raymond James feels like Merrill Lynch of 20 years ago."
In addition to the IBDs, firms like Dynasty Financial Partners have also been helping elite teams go independent. Last year, a group of advisers who oversaw $3 billion in client assets formed their own independent firm with backing from Dynasty.
Many advisers are driven by a desire for more flexibility, insiders say. At the big banks, advisers with decades of experience are "treated the same, day-to-day, as someone just starting," says recruiter Danny Sarch.
John Pierce, head of recruitment at Stifel, agrees. "The most productive advisers are entrepreneurs that need support," he says, "not corporate dictates on proprietary products, banking products, or product mix."
That seems to be the case for Watts. The veteran adviser joined Stifel in May and says he feels reinvigorated at his new firm and has already landing new accounts after the switch. Watts adds that he no longer feels like he's surrounded by mid-level management "on the 17th hole just trying to finish."
Yet moves away from established players are not without perceived risks. For some elite advisers, there is an uneasiness about leaving a wirehouse, says Neville. High-producing advisers with ultrawealthy clients may "feel constrained to the real brand name firms," he says.
Advisers may also be concerned about whether their new employer will have the resources and capabilities to serve their clients. In some instances, advisers ultimately decide against moving away from the large firms.