What Will Happen When The Advisor Retention Awards Expire?

Wirehouses are going to confront a private Y2K scare in the year 2019. You remember, right? In 1999, everyone thought that their computers would implode because they weren’t sure what would happen to their systems when the year 2000 hit.

Now major firms are sweating over 2019, when about 90% of their most prized advisors will be at the tail end of their nine-year contracts. With freedom, comes choices. Unconstrained by the need to repay a deal, many advisors will develop a wandering eye, and not just for other wirehouses, once the most favored choices. The landscape has changed and regional and independent firms will continue to be serious contenders.

Back in 2010, when the world was a much scarier place and Wall Street was on shaky footing, advisors with commissions in excess of $500,000 were offered 30% to 75% of trailing 12 months’ gross commissions plus back-end incentives to stay put for nine years.

We are less than five years from that point, and as time moves on, advisors will ditch firms that haven’t proven their value. Many are approaching retirement and will jump ship  to capture their last upfront bonus before going for a second payout for transitioning their book to a younger advisor. (See my previous blog post, Advisors See Double In Sunset Bonus Offers.)

Beginning this year,  almost half of the upfront portion of the retention awards has amortized. As we’ve reported in our monthly newsletter, several regional firms have recently stepped up to the plate and are offering upfront deals that rival their wirehouse counterparts.  A select group of independent firms is offering attractive upfront packages as well.  Taken together, this means that joining a regional firm or going independent are now more doable options for wirehouse advisors. Advisors now have unparalleled freedom to choose their business models.  As we get closer to 2019, and these retention awards continue to wind down, the number of  advisors voting with their feet will increase.  Their selection of firms and business models will be unencumbered by the need to capture the biggest recruiting bonus to buy their way out of their retention awards. I’m looking forward to seeing the choices that these advisors make.

 

About Mark Elzweig

I am an executive search recruiter with an inside track on financial advisors, the asset management industry, and Wall Street. My work has appeared in numerous publications including On Wall Street,AdvisorOne, and Fund Fire. Journalists regularly seek me out, so you catch my bon mots in The Wall Street Journal, Research Magazine, Reuters, and more. You can follow me on Twitter @elzweig or you can reach me directly at 212-685-7070 or elzweig@elzweig.com.
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