The financial services industry has been waging a recruitment war for talent since the Buttonwood Agreement. In the wealth management industry, it is firm against firm as recruiters entice financial advisers to jump ship and broker-dealers develop strategies to keep them in place. The principal weapon in the war is money, some in cash, some of it deferred. Wirehouse recruitment tactics have become especially aggressive.
Why do advisers leave?
You’ve heard the old expression: “What should you do when a headhunter calls? Shut your door and take the call.” Successful advisers are often offered upfront bonuses of one, two or three times their previous year’s income to make the change.
Is that all there is to it? You can come up with more than a dozen reasons why advisers jump ship. Here are three:
The bailout – Advisers counsel clients how to manage their money. Surprisingly, some are bad at this in their own lives. It’s the story of the shoemaker’s children. Although they work in a cyclical business, they may assume one good year’s income is indicative of the future. They leverage up. Income drops and they are in a bind. One huge injection of cash can solve their problems. They move.
The seven-year itch – Advisers see themselves as star athletes with a contract to play for the team for a certain number of years. They consider themselves bound by their contract, not loyalty to the firm. Once their contract is up, they start shopping around for another.
Be your own boss – Compliance gets tougher year after year. Firms get bought by banks. The culture changes. Managers get moved around. The bond they had with “the old firm” is gone. Successful advisers are entrepreneurs and self-starters. They eliminate the middleman by going independent. They become RIAs. Plenty of service providers and turnkey asset management platforms (TAMPs) exist to make the transition easy.
Why do advisers stay?
It’s human nature to pick up change you see when walking down the street. It’s said that a trait shared by good advisers is that they “never leave money on the table.”
Why would a rational person pass up a big, upfront bonus to change firms? There are at least a dozen reasons. Here are three.
Retention packages – Large firms aren’t stupid. They know giving a recruit a big corner office will upset loyal advisers toiling away in less luxurious surroundings. They see those articles about advisers changing firms. They need an incentive to stay. Large firms often offer deferred compensation, suspended bonuses and other incentives to bind advisers to the firm. You might leave the firm, but the goodies stay.
We’re all in this together – A couple of decades ago, the industry shifted to a team model for advisers. New hires are brought in as apprentices. Support staff is shared. It’s an effective model for transitioning a business prior to retirement. It’s a lot tougher for an adviser to change firms when they belong to a team. Clients often have relationships with multiple team members who will fight aggressively to retain those assets. The alternative for the competitor is to bring the entire team over, a big expense. Does everyone want to move?
Ethics – They joined the firm in their 20s. The firm trained them and helped them to succeed. They have a great relationship with their manager. They are comfortable with the firm’s culture and systems. They are financially comfortable. They have a sense of loyalty to the firm that gave them their start in their career. Leaving would make them feel disloyal.
Advisers know what it takes to develop the loyalty a client and built it into a long-term relationship. Advisers with strong, transferable client relationships will always be in demand, and they will have a decision to make as wirehouse recruitment wars ramp up. “Should I stay or should I go?”
Bryce Sanders is president of Perceptive Business Solutions, which provides high-net-worth client acquisition training for the financial services industry. He is the author of “Captivating the Wealthy Investor.”