Many wirehouse advisors are frustrated with increased bureaucracy and a loss of flexibility. In fact, many say they will leave unless their firms re-up the retention deals. Since it is highly unlikely that the mega firms will offer additional retention incentives, this has caused many advisors to pause and think about the greatly expanded landscape. The all-time high recruiting packages—hovering around 350 percent of an advisor’s trailing 12 months production—are also pretty enticing. Did the retention awards buy loyalty or just time? Has the time come where so little is left to be paid back that if an advisor were to choose to go elsewhere, the ties that bind are just not great enough?
When most of the mega firms were acquired or merged in 2008, those firms wanted to give their advisors a compelling reason to stay. Retention deals were richest for the most productive advisors. When Bank of America purchased Merrill Lynch, the bank offered those generating more than $1.75 million annually a bonus of 75 percent of production forgivable over seven years, plus another 25 percent deferred bonus paid over three years. For those producing between $1 million and $1.75 million annually, they received just the 75 percent up front amount, also on a seven-year note. Lower producing reps received concomitantly less in retention awards and a good percentage of folks received nothing.
These retention packages are now approximately five and a half years “forgiven” and so there is only a fractional amount left to be amortized. There is an unequivocal inverse relationship between the amount of money one owes and the level of frustration one feels. As frustrations increase and advisors become freer agents, the sting of having to repay money is just not as pronounced. And, whatever an advisor would have to pay back to his old firm could easily be offset by the receipt of a large recruiting bonus from another firm.
Take the partnership of Victor and Trent, two long-time wirehouse advisors in the South that have a team of eight and are producing $5 million a year on a little more than $500 million in assets under management. Both of these long tenured advisors had been blissfully happy at their wirehouse firm since they had gone through the firm’s training program almost 30 years earlier. But in 2008 their once lauded firm became part of a mega bank. They were ready to explore their options elsewhere. But their new firm offered them almost $2.5 million (on $3.2 million in production at that time) to stick around, and because of market losses and fear of the unknown, they decided to stay.
As the years passed, the two have become increasingly dissatisfied with cultural changes, loss of confidence in firm leadership as well as continued client defections directly attributable to the negative press surrounding the firm. “It felt like we were watching the hands of a clock move slowly around for the last five years,” says Victor. “We were just biding our time waiting for our retention to expire.” Finally, after losing out on several large prospects, they reached their tipping point. Victor and Trent realized that with two years left on their retention note, they now had options. With the tremendous growth of their business and the size of transition deals that were being offered them, they could easily find a new home for their team and, even after paying back the retention balance of $600,000, walk away with a sizeable amount of money.
After weighing their options between another wirehouse where they had the prospect of being paid almost $20 million, they decided to go independent with a firm that would invest in them and offer them significant cash, equity and access to what they believed was a better platform. The team made the leap in late 2013.
If the tangible impact of whatever frustrations advisors are feeling are great enough, they need to know that they are not stuck. While some money may be owed as a price for walking away early, that cost is decreasing every day. For us, “as goes January, so goes the year.” I look back at a robust January where, as a firm, we have seen strong advisor movement and an uptick in interest from top advisors nationwide.
