Nearly 9,700 experienced advisors who hold Series 7 brokerage licenses changed firms in 2023, a 7.5% increase over 2022—a gain that came despite historically transition-dampening headwinds such as the regional banking crisis early in the year and multiple geopolitical conflicts, said Diamond Consultants in its 2023 Advisor Transition report.
While there was plenty of movement from one channel to another, such as an advisor moving from a regional broker-dealer to an independent broker-dealer, more common were the intra-channel transitions, such as from one wirehouse to another, according to Jason Diamond, executive vice president and the author of the Morristown, N.J.-based firm's report.
For example, independent broker-dealers registered 7,807 head count gains and 7,244 losses, netting out to a gain of 563. But the channel also pulled 563 advisors from other channels. Regionals also gained 612 reps and lost 571, netting out to a gain of 41.
Boutique and wirehouse firms suffered net losses, as some of their advisors left for independents and regionals, the report found. Boutiques gained 99 brokers but lost 355 for a net loss of 256, and wirehouses gained 1,156 but lost 1,504 for a net loss of 348.
The top recruiters were Morgan Stanley in the wirehouse segment with 445 advisor hires, Raymond James & Associates in the regional firm category with 159 hires, and LPL Financial among independents with 1,526 hires.
“We view the advisor as the real winner of 2023 because there were more legitimate choices than ever before,” Diamond wrote in the report.
For an advisor working with a W-2, compensation offers were pegged to the advisor’s trailing 12 months of production (T12). Typically, offers of 300% T12 are now table stakes, the report said, with about half paid up front, while the rest is paid as back-end hurdles or contingent earnouts.
For non-W-2 advisors in the independent broker-dealer space, 50% of T12 is the norm now, the report said, but some firms have paid more than 100% of an advisor’s gross dealer concession (GDC). And some firms have recruited based on an advisor’s assets under management, not the GDC.
The Advisor Transition Report tracks movement through Finra registration changes for Series 7 holders who have been in the industry for at least three years. According to Diamond, this is the most objective way currently to get a snapshot of movement within the industry.
“Historically, what people looked at was what number the firms self-reported,” he said in an interview. “Ideally, we’d be able to get numbers for any advisor with a book of business, whether they hold a Series 7 license or not. But right now we can only track through the license.”
Filtering the data through length of service means the numbers can exclude trainee brokers who get their license and their first job but haven’t amassed any assets. Even that is a flawed but necessary choice as financial advisor movement data is very difficult to come by, Diamond said.
“We’re using length of service as the filter, but the better filter would be advisor productivity or revenue,” he said. “But length of service currently is the best proxy for productivity.”
In addition to the Finra data, provided to Diamond by Discovery Data, the report includes first-hand knowledge of industry trends as seen through contract negotiations, as well as industry news sources.
The war for talent forced all firms to up their recruitment game in other to compete, and the seven firms that did this best, according to the report, were Morgan Stanley, UBS, Rockefeller, Raymond James, RBC, LPL and Ameriprise.
Four primary avenues to recruitment and retention in 2023 showed that firms were equally willing to be more creative and more heavy-handed in their efforts to attract and keep staff, the report said. Sunset/retire-in-place deals, for example, are a good way for advisors to monetize their interest in their firms without actually making a transition), but they have onerous restrictions attached that tie next-gen inheriting advisors to the firm, the report said.
Forgivable loans are being extended to as long as 13 years to keep advisors in place, although 10 years is more normal, the report said, adding that the threat of litigation can be a deterrent not just for the team leaving but also for advisors thinking of leaving in the future.
Virtually all firms now use client fee rebates to keep clients from following their advisor, however, “these efforts often scare advisors but, in practice, prove futile since quality advisors add far more value than can be ascribed to 6-12 months of their advisory fee,” the report said.
Looking ahead to the rest of 2024, the report cited eight trends it thinks will influence advisor transitions:
- Multigenerational teams will need to solve for both the retiring advisor’s desire to monetize and the next-gen advisor’s desire for independence.
- Private equity’s interest in wirehouse teams will accelerate.
- “Supported independence” will be the model to beat, as they offer turnkey services to breakaway teams.
- Firms will use compensation plans to control advisors.
- Advisors will need to differentiate their services as much as ever.
- Firms will need to highlight their flexibility and offer multiple channels for affiliation to suit all needs.
- The independent space will continue to be the fastest-growing segment of the market but will only account for 31.2% of assets under management by 2027.
- More firms will be willing to hire private bankers.