Thoughts on the industry’s biggest question: Will deals ever go back up?
For the most part, wirehouse transition packages are at a nadir. While there are some outlier deals – First Republic Wealth Management, Wells Fargo Private Client Group, RBC, and Ameriprise – Morgan Stanley, UBS, and Merrill Lynch have decided to jointly retrench on recruiting, lowering the once high watermark deals considerably.
So what does this mean for advisors who are considering their future?
For top producers, what was once a 350% deal plus unvested deferred comp reimbursement is now a 250% deal with possible partial deferred comp reimbursement. That’s quite a cut and certainly begs the $64,000 question: “Will deals go back up and am I better off waiting to make a move?”
It’s anyone’s guess where recruiting deals will go and how much these wirehouses will make recruiting a part of their growth strategy, but we do know this:
- Recruiting is critical to maintaining scale, and provides the ability to invest in platform and continually innovate. If attrition persists (and it will), and firms don’t replace their losses by way of recruiting, they will fall behind.
- Recruiting deals got out of control—it felt like the Wild West for a while. I wasn’t complaining, mind you, but I do know that the firms were looking to reduce the price of recruiting quality talent for years, and they used the DOL Rule as a good excuse to do so in October of 2016.
- The current deal structure feels like equilibrium, the “new normal.” While many advisors won’t think it’s enough – and it will definitely push more folks towards independence – I don’t expect that we will see deals rise significantly in the near term. There is no real reason for the firms to drive prices up again. They are fat and happy for now because they have been successful in their efforts to date. They seem to be focused on organic growth and finding ways to bind their advisor forces more, and, most importantly, they just don’t want to.
If you have a deal in hand now from one of these wirehouse firms – and you agree that a total deal of 250% is the new normal – then it won’t serve you to compare this number to what your buddy may have gotten a year ago or what you were offered a while back. The only thing you can do is look forward, and focus on the following:
- Decide how badly you want to move.
- Consider how much you like one of these firms, and if any one of them is the “better enough” option for you.
- Determine if 250% of your trailing 12 months revenue number is enough for you. (Truth be told, it’s usually still a big number).
And, then ask yourself the following:
- “Am I a gambler? Am I willing to turn away the proverbial ‘bird in the hand’ in hopes of getting a better deal later on?”
- “Am I ‘happy enough’ where I am? Could I live with staying put?”
- If recruiting deals wind up going further down, would I be regretful of not having moved when I had the chance?
- “What else am I looking at?” If you feel good enough about your other options, especially if any of them are offering deals bigger than Merrill, Morgan and UBS right now, then your decision seems pretty clear.
The reality is that we are in unchartered waters as far as recruiting is concerned. In the more than 20 years I have been a recruiter in this field, deals have only gone in one direction—and that was up. There is just no way to know where deals will be in the future. What we do know for sure is that senior leaders at the big firms are hoping that retrenching on recruiting will pay off for them in the form of more profitability and less attrition.
In the meantime, the best advice is to remain open-minded. Pay attention to what you hear and see at your firm, yet continue to get educated on how the landscape of the industry is evolving. Most importantly, always have a Plan B at the ready, so that you can take action at any time—because with an ever-changing landscape, we never really know the shelf-life of any opportunity.