Has anyone ever asked you the question, “What’s missing in your career? Your life?”

The question is a simple one. Yet it’s often met with surprise, followed by deep introspection. I know this to be true because for the last 21 years, I’ve worked with advisors to help them find what’s missing in their current roles and connect them with firms that are best equipped to make them feel full again. In fact, the first advisor I ever worked with responded to this question with, “Wow, no one has ever asked me that before!”

At face value, this recruitment approach makes sense: first, understand what the advisor wants, and then find a firm that can go above and beyond in providing what they’re looking for. All parties involved will then get the highest ROI when the advisor is fulfilled, appreciated, and challenged.

The truth is, this approach to recruiting is not simple. It’s time-consuming, involves both personal and professional development skills, and can be difficult to scale—I call it the “Fit Over Fee” model.

So, what happens when limited capacity meets competitive recruiter commission fees? You guessed it. It becomes tempting for recruiters to cut corners on the Fit and focus on the Fee.

Here’s what most traditional recruitment firms will never tell you: the firms that pay the highest fees usually get moved to the top of the stack for prospective advisors. This conflict of interest is one of the biggest reasons why we have an industry in which so many advisors feel displaced, unappreciated, and eager to move. In 2020 alone, more than 30,000 advisors made transitions to new firms.

I believe that in order for the industry to course-correct, we need to re-think the archaic fee model and offer flat recruitment fees. But first, it’s important to understand why we have these structures in place, and how they are harmful, before we look into how we can fix them.

The Problem With How Recruiters Get Paid
Put simply, recruiters make their money when they successfully place their client (in this case, the advisor) at a new firm. In most cases, they’re paid by the hiring firm, not the candidate.

In the wealth management industry, the typical recruiter fee is calculated at 6% of the advisor’s trailing-twelve-month revenue (abbreviated to T12) for broker-dealers, and 6 basis points (bps) on AUM for advisory firms. The 6% fee is paid in a variety of ways depending on the size of the firm paying the fee. Some pay it all upfront, while others pay half upon the advisor joining and the other half spread out over a year, or after the first 12 months.

This standard fee has been in place for a very long time. Years ago, the independent advisory firms rolled this out to try and engage with third-party recruiters as a way to compete with the wire-house firms who were paying 6-8% of T12 to those same recruiters.  

While this fee structure seems standard and fair, it is often used for firms to compete with one another by driving lead flow from recruiters who are fee-focused. Firms promote “accelerator” fees to recruiters which can be as high as 10 - 12% of T12 or 10-12bps on AUM.

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