When we think about remarkable years in terms of advisor movement, we immediately recall 2008-2009, when more than 20,000 advisors switched firms.
I doubt we will ever see another time like that with a similar confluence of events and frenzy. While movement in 2012 feels relatively disappointing, particularly in the wirehouse space, the year will likely be remembered for a few surprises and highlights.
In the surprise category, high-profile Merrill Lynch loyalist Peter Sargent moved his $250 million book to Janney Montgomery Scott, a regional firm; Merrill Lynch stalwarts John Beirne and Jim Betzig, a $2 billion team, started their own RIA with Focus Financial Partners; Phil Noble, who spent his entire career with independent broker-dealer LPL, made a “break-back” move and took his $100 million business to join Morgan Stanley; and ,of course,scores of advisors made the more traditional wirehouse to wirehouse move for all cash, high water mark deals of up to three-and-a-half times trailing 12 month production.
Finally, the winner of the most envied/exciting deal of the year may go to Luminous Capital, an RIA who sold itself to First Republic Bank for an eye-popping $125 milllion in cash less than five years after breaking away from Merrill Lynch, illustrating the power of possibility in the independent space.
Given those events and so many others in the works, we feel comfortable declaring the independent channel as the overall winner this year – finally legitimizing its place beside, not behind, all of the traditional options available to the highest quality advisors and teams. So, with the benefit of hindsight and from a recruiter’s vantage point, I will outline why movement occurred the way it did this year, why certain firms came away as winners, and what I predict in terms of advisor movement in 2013 and beyond.
Focusing on the wirehouse channel, each firm took a turn in the media’s crosshairs. As a result some advisors either hunkered down and chose not to go from the frying pan into the fire, or sought models outside of the wirehouse space altogether.
Not even wirehouse transition packages at an all time high of 350% for top FA's could entice them. To further stifle recruiting, many advisors perceived only subtle differences among Morgan, Merrill, UBS and Wells and couldn’t justify making a move that may only be marginally better for themselves and their clients. Moreover, the majority of wirehouse advisors remain tethered to their firms with slow to forgive retention deals or transition packages from previous moves. So, despite record frustration levels among advisors overall, many remain in "watch, listen, learn and wait" mode. Advisors who moved in 2012 were mainly those with tangible impediments to growth and client service who believed that repaying money owed to their firms was well worth it, in return for the ability to work in a less restrictive environment.
In contrast to wirehouse recruiting, newer firm models like HighTower Advisors, Dynasty Financial Partners, and Focus Financial Partners brought over dozens of top advisors which added to the growing validation of the independent space. They are helping reinvent the industry. Their ascendance and documented ability to ignite growth for those who join them, as well as allowing advisors to gain independence in a turnkey manner to monetize their businesses, has made them magnets for marquee advisors.
Year-to-date, HighTower has converted ten teams with an average AUM of $525 million for a total firm AUM of over $20 billion; Dynasty, which is less than three years old, added 14 teams this year, out of the 17 they have total, and now have more than $15 billion in AUM; and Focus has transitioned $10 billion in assets over the last three years (nearly $7.5 billion this year alone) for an overall firm AUM of $52 billion.
Advisors who joined these firms seek greater control over their professional destinies, less bureaucracy and inefficiency, more transparency for their clients, superior service models and ways to build equity. The major firms that dismissed these models just a few short years ago now recognize that they are formidable competitors.
In our discussions with advisors who are already independent, many tell us that, after years of relying on their broker-dealer to provide the platform, they are dissatisfied overall with the service and thought leadership they are receiving. They expect more in areas including practice management, recruiting, business planning, succession planning, compliance and the like. Like all quality advisors today, these business owners are in the driver’s seat and will seek alternatives if their partner firms cannot offer the best possible suite of services. Never have the pastures been greener with opportunities for growth-oriented businesses, and broker-dealersneed to step up their games lest they lose their best talent.
Looking Ahead to 2013
No one has a crystal ball, but I can say with confidence that all of the elements are in place to make 2013 a more robust recruiting year. Among the wirehouses, we anticipate greater movement as retention packages continue to expire and the proverbial “golden handcuffs” loosen their grips on advisors who received them. Of those who move, naturally many will go to other wirehouses; they are familiar, offer the most upfront money, and the easiest transition (at least that’s how it is perceived). Others will choose some form of independence where the options are now more varied and better suited to high quality advisors. According to Cerulli Associates, advisors will continue to shift toward independent business models, and RIA and dually registered advisors’ market share will nearly double between 2010 & 2015.
The firms that won big in 2012 will almost certainly continue their momentum in 2013 and beyond. New firms will undoubtedly be created to challenge the status quo and take their places across the landscape. And, there will be the inevitable headlines and industry buzz to keep advisors talking and industry thought leaders on their toes. Those of us that are students of this industry are anxious to see what lies ahead and how this anything but static industry will respond.