Working from home during the Covid crisis has awakened many brokers and financial advisors to new beginnings, setting off a wave of departures to independence, consultants say.

“Advisors are realizing that they are not getting as much value from their current firm, especially working from home,” said Louis Diamond, president of Diamond Consultants in Morristown, N.J. He also noted that some advisors are at odds with their firms’ policy on remote working, Covid testing and vaccine mandates.

Diamond said the pandemic has created a perfect storm where there are more options than before for advisors. “You have the pull factor of just better options and more models have popped up that’s meeting advisors where they are,” he said.

Diamond and other industry recruiters said it is a good time for an advisor to consider moving, and many across the industry have taken notice and are successfully branching out on their own. Advisor movement, they said, has reached record-breaking levels in the past two years, and they said the trend, which is happening equally among individuals and teams, will continue in 2022. The recruiters said more independent-supported models are helping to fuel the exodus.

“There are more and more models coming out to cater to wirehouse advisors who want more independence, more autonomy and more control, but [who] don’t want to take on more of the business side responsibilities,” said Jeff Feldman, founder of Financial Recruitment Partner in Chicago. He noted that some firms are rolling out models where breakaway teams can focus on their primary areas of interest and expertise such as client-relations and investment management.

Feldman added that “advisors are being extremely efficient and productive working from home and remotely and that has caused them to question giving up more than half of their revenue to their firm and looking at other channels where they can keep more of their income.” He noted that advisors give up 55 cents on every dollar that they earn for their firm.

Deal structures, too, are as compelling as they have been, Diamond said. “There are different options for what advisors want to accomplish,” he said. Also, he said they are seeing a strong comeback in the recruiting space from the wirehouses, except for Merrill Lynch.

Diamond said his firm moved more teams than ever last year. The movement, he said, included a mix of advisors staying in channel from wirehouse to wirehouse, advisors going to boutique or regional firms, and breakaways or wirehouse moving to independence. And in each of those categories, Diamond said there is no firm that stood out. “I can probably point to three or four firms that have done really well and will continue to do so,” he said.

Seeing these new leaders emerge in the recruiting space is interesting to watch, said Casey Knight, executive vice president and managing director at ESP Financial Search in Houston. He singled out LPL as a clear winner. “We are seeing LPL just catch absolute fire,” he said, noting that recruiters want to go where they expect to get deals. “And no one is capable of doing that more than LPL, not by a mile."

Knight also pointed out that the market is becoming more competitive, and the gap is widening between the firms that are behind from a resource and technology standpoint and those that are ahead of the curb. “A lot of firms that are not keeping up with the Joneses are going to get left behind, and we will start to see that especially with a lot of the small independents and soon everyone is going to capitalize in the RIA space,” Knight said.

Recruiters said they are expecting another busy year for advisors’ movement. Part of it, Feldman said, will be the push from wirehouses on making changes to their compensation plans. “A lot of these changes are primarily negative and not for everybody,” he said. “Any changes to a comp plan are basically in the interest of the firm and less toward the advisor,” he said.

Feldman cited the carrot-and-stick approach that Merrill Lynch rolled out in its 2018 comp plan that rewarded advisors for bringing in new clients and docking their base pay for failing to recruit a minimum number. “That really was a catalyst to a lot of long-tenured advisors to do some due diligence and look outside the firm,” Feldman said.

He also cited UBS’ latest comp plan, which calculates advisors’ length of service in real time as suspect. “Even though they try to spin it as a positive for the advisors, I know very few advisors find it as a positive for their net take-home pay, unless you have been at the firm for over 30 years,” he said.

The bottom line is that advisors’ mindset after working in a “captive-type situation” has changed, said Jodie Papike, president of Cross-Search Advisor Placement Services in Encinitas, Calif. “It has made them rethink their structure to say, ‘there are a lot of things about this new way that I like. I don’t want to commute anymore. I want to create my own infrastructure. I don’t need a big firm to do all this for me and take such a large override. I can do it myself because I have been doing it myself now for over a year and it’s working,’” she said.  

Papike added that it takes a lot for an advisor to move. “There has to be some real pain there, but the service at a lot of firms is lacking to the point where a lot of people are moving,” she said.