Mindy Diamond Quoted
By Michael Shagrin
Though Merrill Lynch U.S. wealth management head John Thiel last week announced that the firm is looking to expand its advisor ranks, respondents to a recent FundFire reader poll do not believe this is an indicator that the wirehouses as a group will dramatically increase hiring.
Instead, the big four brokerages will continue targeting high-quality advisors in order to replenish a profession beset by attrition, recruiters say. But overall, firms are in a hiring holding pattern.
More than 60% of respondents to the poll said that the wealth management industry should not expect a wirehouse “hiring blitz.”
The results are as of late afternoon Wednesday, with 121 readers voting. Click here to vote in the ongoing poll.
Recruiters say the recent announcement from Merrill does not portend a departure from the prevailing hiring trends at the wirehouses. Though the firm trailed its rivals with just 13,725 advisors at the end of the first quarter, the powerhouse brokerages are all facing similar challenges – they are losing advisors to both retirement as well as other advisory channels, namely independent registered investment advisors (RIAs) and regional broker-dealers. The wirehouses have reacted by searching for advisors with impressive books of business – a tendency that recruiters expect to continue.
“Competition for advisors is stiff,” says Mindy Diamond, president and CEO of Diamond Consultants. “Wirehouses are always in a war for top talent. They’re always looking to best each other.”
Though there is a high demand for advisors, it does not mean the wealth management industry should expect a hiring spree since there is only limited supply of advisors willing and able to join the wirehouses. The number of new advisors is low and the big four hire primarily from each other, recruiters say. At the same time, RIAs and regional brokerages have consistently poached advisors from the wirehouses.
“As the landscape has expanded and the choices [available to] advisors have become more fractured, it’s less of a slam dunk that an advisor leaving Merrill will go to one of three other [wirehouses],” Diamond says. “Nowadays, the regional firms are legitimate landing pads and the whole independent landscape has expanded. With that competition, there are fewer advisors to choose from.”
Firms across the spectrum are currently willing to offer rich incentives to advisors looking for a change of scenery because clients are more likely to stick with their advisor during market highs, according to Mark Elzweig, president of Mark Elzweig Company, an executive search firm. “They generally have happy clients and advisors, as a general rule, are confident they’d be able to bring their clients to a new firm,” Elzweig says.
“It’s a much easier time to move when things are good than when the market turns down. The recent experience of clients is much more likely to be positive. So when we talk to advisors, they’re confident in their ability to transport their clients to new firms,” he adds.
Furthermore, the Financial Industry Regulatory Authority (FINRA) recently put the kibosh on a proposed rule requiring advisors to disclose recruitment compensation to their clients, eliminating a possible barrier to advisor movement.
But recruiters say the wirehouses are hiring merely to survive – at the current rate, they are not adding enough new advisors to replace those that they expect to retire or leave for greener pastures.
“At the wirehouses, there’s a shrinking in terms of advisor demographics,” says Elzweig. “They’re shrinking and aging. More than 40% of wirehouse advisors are 55 years of age and older, so there’s a finite supply of talent.”
Indeed, data from Cerulli Associates puts the average age of advisors at 51 years old.
Another recruiter points out the same problem, saying that the big four are hiring just to keep their corps of advisors from dropping below unsustainable levels as more of their ranks are drawn to the independent channel.
“They’re hurting due to attrition,” says Danny Sarch, president of Leitner Sarch Consultants. He says the stream of departures from the wirehouses is being hastened by the lavish recruiting packages characteristic of bull markets. Given the opportunities at rival firms and independent brokerages, Sarch says the idea of “loyalty to an institution just seems naïve.”
The dwindling number of advisors has also put stress on the managerial ranks at the wirehouses, according to Sarch. The leadership at field offices is usually picked from advisors, but those positions are not as stable as they once were, Sarch says, citing recent pay cuts and the disappearance of these roles altogether.
“Do you really think an advisor at a crossroads will decide to go into management as opposed to building a bigger business?” he says. “The challenge now for big firms is finding the next generation of field leadership that may never have been in the field.”