Independent broker-dealers last year continued to make inroads in recruiting the most valuable financial advisers and registered representatives of all — those who work at the four large wirehouses: Merrill Lynch, Morgan Stanley, UBS and Wells Fargo Advisors.
Wirehouse advisers are the highest producing in the industry; on average the generate in the neighborhood of $1 million per year in fees and commissions. Advisers at independent broker-dealers, so-called because they are employed as independent contractors rather than employees, on average generate one-quarter to one-third that amount of revenue.
Advisers at independent broker-dealers offset that imbalance, however, by keeping a much larger percentage of their total annual revenue and enjoying certain tax benefits as small business owners. Along with improving technology, that’s part of the pitch IBDs use when trying to convince advisers to leave one of the big Wall Street banks.
It’s often been a tough sell for an independent broker-dealer to convince a wirehouse adviser to join, noted Danny Sarch, a veteran industry recruiter. IBDs have had some success in the past, particularly with wirehouse advisers who are among the smaller producers, he added, because those advisers see such an immediate boost to income due to the higher percentage payout at independent broker-dealers.
“I’m skeptical but I think the IBD model is appealing to people,” Sarch said. “It’s an in-between place for a wirehouse adviser to land before moving to the RIA world.”
Large IBDs are also recruiting by building out their registered investment advisory platforms to lure wirehouse advisers, often pitching themselves as an RIA first and a broker-dealer second.
Kestra Financial Inc., for example, recruited 23 advisers from banks and wirehouses over the first 11 months of 2020, up from 15 during the same time a year earlier, according to InvestmentNews data.
LPL Financial, meanwhile, is “recruiting more from the wirehouse and bank channels and the average size producer joining LPL is increasing,” a company spokesperson said. “Of wirehouse/regional advisers in motion in 2020, LPL was up 33%.”
According to InvestmentNews research and data, LPL recruited 246 wirehouse and bank reps and advisers over the first 11 months of 2020, down 4% compared to a year earlier and before the pandemic quashed normal business activities like travel for potential recruits.
On Jan. 4, Raymond James Financial Services Inc. said it had recruited a $1.1 billion team from Morgan Stanley, perhaps a harbinger of a strong year for IBDs to recruit wirehouse advisers.
Commonwealth Financial Network, one of the most successful independent broker-dealers, is also increasing its efforts and recently lowered its pricing on separately managed accounts, bringing them in line with the competition, to lure wirehouse advisers. It also has boosted its transition bonus for recruits with an eye on wirehouse advisers.
Certainly attracting wirehouse reps should be easier than in 2020, when the COVID-19 pandemic shut down recruiting efforts for a time and then forced IBDs to shift their efforts to recruiting virtually rather than in person.
“Broker moves had a good year in 2020, especially from the wirehouse side,” said James Poer, CEO of Kestra. “I think it’s going to continue. COVID has made those advisers realize that [national] brands that go through cycles of ups and downs are not what this business is really about.”
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