It's time for me to give my 2016 predictions for the wealth management industry, with a focus (obviously) on recruiting:
1. The trend of substantive wirehouse teams departing the wirehouses for "anything but a big firm" will continue.
My own calculations show that 2015 was the second year in a row where fewer than 50% of all advisers who departed a wirehouse ended up at another wirehouse. I expect 2016 to be more of the same.
(Related read: Wirehouse recruiting numbers need to be more transparent)
The biggest firms have brands that are still tainted by the financial crisis. In addition, the sheer number of advisers under their umbrellas make it more likely that there will be a "bad apple" who will lead to more bad publicity. This headline risk has made the wirehouses create procedures and policies that are layered on top of Finra rules, creating an atmosphere of mistrust in their branches.
Firms are bridling their advisers' entrepreneurialism with a "just say no" attitude. The best performing (both in production and investment management) and most ethical advisers are treated exactly the same way as the masses. Frustrated, more and more of these elite teams are seeking smaller organizations, if not true independence, in order to free themselves from big firm shackles.
2. More copycat smaller firms will emerge.
At a recent conference, one of the heads of a major custodian told me that there were now more than a dozen firms that are providing third-party services to help breakaways set up their own firms, clearly attempting to duplicate the success that Dynasty has had.
Championing the fiduciary standard and a collaborative culture, HighTower Advisors has become a destination for big teams who want to be part of a firm that recognizes and supports the uniqueness of each team's practice. Steward Partners, leveraging the Raymond James platform and founded by and run by a talented group of ex-Smith Barney leaders, has had substantive recruiting success. These are just three of many success stories. Success attracts copycats; we will see more models emerge in 2016.
I also predict that wirehouses will fight back, in one case with a long-discarded use of the legal system, and in the other case, perhaps, with some innovation.
3. Legal battles around departing advisers and their clients will become more and more normal.
Since 2004, the Broker Recruiting Protocol has made legal fights between firms over advisers and their clients rare. The days of peace are gone. The massive movement that has made headlines the last several years makes "orphan" accounts more common. That is, the clients who do not move with a departing adviser are assigned to an adviser at the old firm.These "firm provided" relationships are usually accompanied by a legal document that makes the inheriting adviser recognize that these clients are NOT protected by the Protocol. Some of these advisers will leave, will want to take these clients with them, and WILL be sued.
(Recruiting data: InvestmentNews' exclusive Advisers on the Move database)
4. One of the wirehouses will move to become a fiduciary.
One of the reasons that wirehouse deals are so high is that discerning advisers see very little difference among them. I believe that before the end of the year, one of the wirehouses will declare their intent to make the changes necessary to be a true fiduciary. And it won't be only because it is the right thing to do. It will be because they will not be able to retain or attract the best talent UNLESS and UNTIL they do it.
Is this type of dramatic change possible? The U.S. Department of Labor's fiduciary standard is just the beginning of an inexorable trend. It would be nice if the leaders of the wealth management industry could proactively get ahead of this trend.
But then again, it would also be nice if I could be 6'3'' and have all of my hair back.
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.