Wirehouses luring talent at indie B-Ds

Sep 11, 2011 @ 12:01 am

By Bruce Kelly

Desperate to reel in star brokers, the wirehouses are fishing more than ever in the unlikely and foreign waters of independent-contractor broker-dealers to hook their top representatives.

And the deals that firms such as Bank of America Merrill Lynch and Morgan Stanley Smith Barney LLC are dangling are just as generous, if not more so, than the top recruiting packages for elite wirehouse brokers who annually produce $1 million or more in fees and commissions.

Those recruiting deals, which are offering brokers a chance to carry old assets as well as building new business, can run as high as 300% of a broker's prior year's earnings, or “trailing 12” as it is called in industry shorthand.

All four major wirehouses, including UBS Financial Services Inc. and Wells Fargo Advisors LLC, are in the chase, brokers and industry observers said.

“Three years ago, we didn't get any recruiting phone calls” from a wirehouse, said a top-producing broker and independent franchisee with Ameriprise Financial Inc., who asked not to be identified due to confidentiality agreements.

“Now it's one a week from Merrill Lynch, Morgan Stanley, Wells or UBS,” the broker said.

“Before, we weren't very attractive to them, but the fact is, they have to get their numbers up. Now they're looking at independent reps as a way to fill in the gaps,” the broker said.

“The wirehouses will become more aggressive and make better offers for specific targets,” said Paul Brown, a former consultant with Moss Adams LLP and chief project officer with DeWaay Financial Network LLC, an independent broker-dealer. “They're going to go after the cream of the crop [of independent reps], give them a good price and lock the broker in personally for an earn-out.”

At least two firms acknowledged fishing for independent reps.

“We hire experienced advisers from a variety of backgrounds and have had great success hiring and transitioning advisers from the independent space,” said Matt Card, a spokesman for Merrill Lynch. “As always, we are interested in top-quality advisers, preferably with designations.”

At MSSB, “we look for quality financial advisers from multiple channels and continue to see increased interest from independent advisers as they recognize Morgan Stanley Smith Barney's superior platform, technology and resources,” said Christy Pollak, a spokeswoman for the firm.

Representatives of UBS and Wells Fargo didn't return calls seeking comment.


The notion that the major wirehouses, even tentatively, are making moves to recruit top independent-contractor registered reps indicates the sea change that the investment advice industry has experienced over the past decade, brokers and industry observers said.

To add to their sales forces, wirehouses traditionally have either poached from one another or trained new brokers.

Once-flourishing training programs barely exist at the four major firms anymore.

And opportunities to steal brokers from one another also have lessened as the pool of wirehouse advisers has shrunk over the past 10 years. Also, some received bonuses during the credit crisis that require them to stay with their firms for many years.

In 2005, the five wirehouses, which included Smith Barney, employed 57,262 brokers and investment advisers, according to data provided by Cerulli Associates Inc.

Morgan Stanley and Smith Barney merged in 2009.

At the end of March, the four remaining majors employed 50,743 brokers, a decline in head count of 12% over little more than a five-year period. (For a year-by-year breakdown of the decline in wirehouse rep population and assets, click here.)

To recruit an independent broker, wirehouses commonly offer deals in the neighborhood of two times a rep's annual earnings, or 200% of a rep's trailing 12, brokers and observers said. But for a big fish, deals may run as high as four times an adviser's annual take-home pay, or 400%, said one independent broker affiliated with Raymond James Financial Services Inc., who asked not to be identified because of confidential discussions.

“The upshot is, they want to buy you out cheaply,” the broker said.

“They take away your ownership of the past, and you own nothing going forward. You change from an independent entrepreneur to an employee,” the broker said.

Major hurdles face the wirehouses in their efforts to recruit independent reps, brokers and industry observers said. The money comes to the broker in the form of a forgivable note, but the length of time to work off the deal is typically 10 years, and independent brokers routinely balk at the notion of such lengthy ties.

Also, the broker's payout would decrease dramatically and be cut just about in half, with wirehouses typically paying brokers in the range of 40% of the revenue they generated from sales. That pay cut, however, would be offset somewhat by the independent adviser's no longer having to pay for his or her own expenses, such as the salary of an assistant.

Industry observers differ over whether wirehouses are being more aggressive right now than in the past, but the phenomenon is quite real to some.


The wirehouses “are sniffing around,” said Bing Waldert, a director with Cerulli.

“The interest from wires is slightly more keen — not greatly. It's heated up as the channel has stagnated and even shrunk,” Mr. Waldert said.

He noted that the recruitment of an independent rep by a wirehouse is still, by far, the exception rather than the rule.

“This idea of adviser independence for brokers is a very real thing,” Mr. Waldert said. “This now becomes a public-relations story.”

Because the wirehouse firms are losing market share, landing a star broker from an independent broker-dealer would become a “PR coup,” he said.

The shrinking wirehouse ranks leave the major firms little choice than to go after indepdent reps, Mr. Waldert said.

“Go back to Economics 101. Think of financial advisers as a commodity,” Mr. Waldert said. “The number of productive advisers is shrinking. As supply goes down and demand goes up, prices increase.”

“Look at the 300% package and overlay that with a stagnating industry and a limited number of productive advisers; it makes more sense,” he said. “The money gets very compelling very fast.”

Email Bruce Kelly at bkelly@investmentnews.com


What do you think?

View comments

Recommended for you

Upcoming Event

May 30


Adviser Compensation & Staffing Workshop

The InvestmentNews Research team will present exclusive data and highlights from its bellwether benchmarking study that will identify best practices for setting and structuring compensation and benefits packages throughout your... Learn more

Featured video


The need for easier investment options.

Rob Barnett of Wilmington Trust makes the case for simpler investment choices for plan participants and sponsors.

Latest news & opinion

Why we must create a more diverse and sustainable financial planning profession

CEO explains how, why a firm should commit to conscious inclusion.

Pope Francis wants financial advisers to work like fiduciaries

Vatican bulletin admonishes advisers who act against the best interests of their clients.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print