More To Play For: Large Advisory Teams On The Move

Harriet Davies

6 February 2013

Advisor movement was “middling to slower” in 2012, but was characterized by movement among top, high-producing teams, says Mindy Diamond, founder and president of Diamond Consultants.

The average T12 of deals done by top recruiters last year was in the $2-$3 million range, up significantly from 2011, according to data aggregated by the advisor recruitment firm.

“Historically large teams were the ones that were least likely to move,” but that has changed, Diamond told Family Wealth Report. The seniority and status these teams had within their firms, as well as the terms of their compensation, often left them feeling they were better off where they were. However, according to Diamond, in 2012, the balance tipped in favor of movement for many such teams.

Part of this has been the change in structure within the industry. As big firms have become bank-owned and the teams encounter more bureaucracy, as well as the cultural implications of that, some have reviewed their options, she said. Brand is also important to advisors, and they want to identify with the brands they represent.

Not irrelevant either is the fact that big incentive packages within the wirehouse channel last year were at watermark level, says Diamond, and there are also “more legitimate options” for the big teams now than a few years ago.

She cites firms like Dynasty Financial Partners, HighTower and Focus Financial Partners; she believes this model has created “the perfect solution” for some high-producing teams, and a viable alternative to the wirehouse channel for those looking for more control and independence.

“It started in late 2011, it picked up momentum in 2012, and I know we’re going to see more of it in 2013,” says Diamond.

She believes this because of her own pipeline and conversations, but also because she believes there’s a lot of pent up large team movement. “These deals take the longest,” she says. The more moving parts there are, the longer a transition takes, and she believes there are a number in the works that will come to light in the near future.

But wirehouses are competing fiercely too for this talent. “There is nothing that leads us to believe they are going to…pull back on these packages,” says Diamond. The real differentiating factor between wirehouses - as in many respects they are viewed as similar by advisors - is the upfront portion of compensation, and Diamond says this has remained constant for a few years now, at about 140-150 per cent of T12 revenue in cash. The fact this has remained level as overall compensation rises indicates such firms aren’t willing to increase the at-risk portion of compensation, and want advisors with “skin in the game.”

Independent firms offer anywhere from no transition money, to 100 per cent cash up front at some quasi-independent firms , according to Diamond Consultants, based on its proprietary research.

Certainly, 2013 has started with a bang when it comes to advisor movement. “January goes, so goes the year,” says Diamond.

The known unknown for the year is FINRA's proposal on broker disclosure of recruitment bonuses. While Diamond thinks there isn’t much that is likely to slow down the pace of movement in 2013, she says a ruling meaning brokers will have to disclose compensation incentives to clients for switching accounts could provide a sudden boost of advisors aiming to avoid this in future.

“We expect it to be a robust year,” she said.