Wirehouses Continue To Face Competitive Market For Top Advisor Talent

Consultants Also Point To Succession Planning As Challenge But Say Wirehouses Aren’t Going Anywhere.
Louis Diamond, President, Diamond Consultants; Timothy Welsh, President of consulting firm Nexus Strategy
Louis Diamond, President, Diamond Consultants; Timothy Welsh, President of consulting firm Nexus Strategy
Jeff Berman, Contributing Editor & Reporter, Wealth Solutions Report
Jeff Berman, Contributing Editor & Reporter, Wealth Solutions Report

The four wirehouses will continue to face some of the same challenges they’ve dealt with for several years, including an increasing number of breakaway advisors, coupled with weakened or eliminated advisor training programs, according to industry consultants interviewed by Wealth Solutions Report.

But there was also some good news for wirehouses in the trends they cited.

For example, Louis Diamond, President of Diamond Consultants, pointed out that, according to his firm’s 2023 Advisor Transition Report, “wirehouse advisors were actually more likely to move to another wirehouse than to break away for independence or a different industry channel.”

Although many advisor teams “opt for independence in some shape or form, the fact that folks on average will stay in channel is meaningful,” according to Diamond.

In 2023, there was a “bit of a pullback on the breakaway front in favor of models” that included Raymond James, he said.

Louis Diamond, President, Diamond Consultants
Louis Diamond, President, Diamond Consultants

“Still, the biggest teams in the industry are curious about building long term enterprise value and … still view independence as their destination of choice,” said Diamond.

Meanwhile, “wirehouse recruiting in 2024 is back to the old days,” according to Diamond. “All four major wirehouses have rolled out enhancements to their recruiting deals and it’s the first time since 2017 that all four firms are back into the business of recruiting top advisors,” he said, referring to Bank of America/MerrilI Lynch, Morgan Stanley, UBS and Wells Fargo.

Because breakaway wirehouse advisors are most likely to flee to another wirehouse, Diamond wouldn’t say the wirehouses are having trouble attracting advisors, he said.

“It is far more competitive than years before, when an advisor really only picked between the wirehouses,” he noted. But now, he said, “we see advisors about 45% of the time choose to move to a regional firm (Raymond James, RBC, Ameriprise, etc.), a boutique (Rockefeller, JPM), or break away for independence.”

Diamond predicted that, behind “much stronger deals than ever before, we will see the wirehouses pick up a decent number of advisors this year.”

Agreeing with Diamond, Timothy Welsh, President of consulting firm Nexus Strategy, said: “The breakaway broker trend is alive and well, particularly with so many new RIA affiliation models.”

Compounding the challenge for wirehouses is that they also have a “bigger succession and aging advisor issue than any other channel,” Welsh said.

Timothy Welsh, President of consulting firm Nexus Strategy
Timothy Welsh, President of consulting firm Nexus Strategy

According to Cerulli’s report, “U.S. Broker/Dealer Marketplace 2023: The Challenging Pursuit of Organic Growth,” released in November, 39.4% of wirehouse advisors said in 2022 that they planned to retire within the next 10 years. Of the categories polled, only independent BD advisors exceeded that number, with 42.7% planning to retire in the next 10 years.

Meanwhile, “due to their lack of investment in training programs,” the issue “will only become a bigger” one, Welsh predicted.

“Most of them have abandoned training programs, and look to their call center advisors, such as Merrill Lynch Edge, to source new ones,” he said. “No one wants or has patience to train and groom the zero producer.”

But he said: “They need to invest in next-generation advisor recruiting/training programs, to backfill for the thousands of advisors who will be retiring over the next several years.”

When it comes to compensation, Welsh said wirehouses “continue to tweak payouts and compensation, which is always a friction for wirehouse advisors, particularly for fee-based (wrap) accounts, which now drive most of the profitability of these business units.”

Welsh added that “everyone is focusing on consolidating relationships as it is so much easier to expand current relationships” with existing clients “versus acquiring new ones.” He pointed out that is the “easiest path to growth.”

Wirehouses are also increasingly “looking for [held-] away assets … especially when the client’s assets are in the company’s” own bank, such as with Merrill Lynch and its parent company, Bank of America, according to Andy Tasnady, Owner of consulting firm Tasnady & Associates.

Andy Tasnady, Owner of Tasnady & Associates
Andy Tasnady, Owner of Tasnady & Associates

Additionally, wirehouses “continue to stress larger and larger clients and look for” more and more productive advisors, Tasnady said.

They also “continue to shift to managed assets and increasingly promote either firm-wide portfolio managers or outside managers,” Tasnady said. That “frees up advisors to spend more time with clients and prospecting for new clients,” he added.

Regardless of the ongoing challenges they face, Diamond predicted: “The wirehouses aren’t going anywhere.”

For one thing, he said, research firm Cerulli recently reported that high net worth clients “still prefer the wirehouses and many wirehouse teams will continue to thrive in this environment.”

Diamond conceded that “the days of the wirehouses controlling” 60% or more of the overall marketplace are “likely gone.”

According to the same Cerulli report, the 10 largest BD firms by assets under management (AUM) had 123,000 financial advisors and accounted for 58% of the total retail financial advisor industry.

“Fueled by a steady stream of mergers and acquisitions over the last decade, this top-heavy skew in the market share of AUM toward the largest firms underscores the need for scale to remain competitive in the marketplace,” according to Cerulli.

“Over the past decade, the fastest rate of growth in advisor headcount, which is largely driven by the recruitment of experienced advisors, has occurred among firms in the independent RIA and hybrid RIA channels,” Cerulli said in the report.

From 2012-22, the compound annual growth rate for wirehouse advisor headcount was -1.3%. The only two types of firms with lower five-year CAGRs were independent BDs (-2.8%) and insurance BDs (-2.5%). RIAs fared best, with five-year CAGRs of 6% for independent RIAs and 4.2% for hybrid RIAs, according to Cerulli.

But Diamond’s forecast is that the “Big 4 firms will no doubt continue to thrive, although with much more competition than ever before.”

Jeff Berman, Contributing Editor & Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.

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