Policy choices driven by the DOL rule “are making us all very different,” Webber says of the way recruits view the major B-Ds.
Meanwhile, those who recruit wirehouse reps say that this market has become better informed about independent channels. Wirehouse advisors are notoriously misinformed about what’s available outside of the traditional firms.
“Recruiting has been fun, because the reality is more and more people understand the main difference between the wirehouses and the independents,” says Steve Dudash, the president of IHT Wealth Management, a former Merrill Lynch rep who broke away in 2014 to set up an LPL-affiliated branch that now serves about 65 advisors with $2.7 billion in assets. “That’s why more higher-end advisors are moving away,” Dudash says.
“We’re seeing a lot of wirehouse-type advisors trying to figure out how to liberate themselves,” agrees Richard Dragotta, head of INC Advisors, another large LPL branch network with 160 advisors.
And when Morgan Stanley and UBS dropped out of the protocol for broker recruiting, wirehouse advisors took notice. “Man, did that scare everybody,” Dudash says. “It really opened people’s eyes. It very much escalated time frames many of these teams are looking at” for a move.
Since 2004, when a number of big firms developed the protocol, wirehouse reps have been free to change firms, take customer contact information and solicit those clients. Suddenly, with the protocol possibly on the ropes, it’s become clear once again to employee reps that they don’t own their clients—their employer firms are acting like they do.
“Even for those at the wirehouses [that] stayed in the protocol, I think it’s opened their eyes to the question of, ‘Where do I want to be in the long term?’” says Mark Mersman, head of marketing at USA Financial, a broker-dealer and TAMP.
Pulling out of the protocol might help the wires slow the breakaway trend, though, at least for now. “Advisors at UBS and Morgan Stanley in particular, because of the change in exiting the protocol, are being a little more cautious,” Curtis says. RJFS gets over half of its recruits from employee-rep channels like the wirehouses and regionals.
Finally, the new tax law also offers an incentive to advisors looking to move from the employee channel to independent contractor status. Pass-through entities, including sole proprietorships, get a tax deduction equal to 20% of their business income, phasing out at incomes of $157,500 (for single filers) and $315,000 (for joint filers). The tax benefit isn’t enough by itself to draw someone to the independent side, but it is an added inducement, observers say.
All told, firms see another good year for recruiting in 2018—some are even a bit giddy about building up their ranks.