As Merrill Lynch and Morgan Stanley cut back, what’s next for recruiting deals?

If you are a wirehouse adviser who has counted a giant recruiting package as part of your net worth, you need to recalculate.

For the adviser seeking a big up front check from a wirehouse, the market just got tougher.

In June 2016, Tom Naratil, president of UBS Americas, wrote an op-ed critical of the industry practice of “relentless recruiting.” UBS has dramatically slowed its recruiting in the year since. In October 2016, the DOL came out with an FAQ section on its controversial fiduciary rule, which expressly forbids back-end incentives as part of recruiting deals. And in the last two weeks, both Merrill Lynch and Morgan Stanley announced they would also dramatically slow down their own recruiting. Of the four wirehouses, only Wells Fargo has decided to stay in the recruiting business. Wells Fargo plans to increase deals for established advisers in an effort, first, to take advantage of the pause by their peer firms, and, second, to overcome the departures of advisers frustrated by the ongoing disclosures in the Wells Fargo banking scandal.

Let’s face it: The wirehouse to wirehouse “prisoner exchange” was hard to justify financially. And yes, I’m one of those who has profited from it immensely over the years. So why have these firms stopped now, and what will happen in the future?

(More: How firms should treat top-performing advisers)

The fact is wirehouse-to-wirehouse recruiting has become unusual. At the time of the financial crisis, 90% of wirehouse departures were to another wirehouse. For the last three years, fewer than 50% of Big Four departures were to their sister firms. The Big Four have always had difficulties recruiting from any other firms or any other channels. More recently, they have had trouble finding “A” candidates from other wirehouses who were both willing to make a change and who had never moved before. In effect, their announcement is like a Mexican restaurant saying that would no longer be serving dim sum. With the cover of the DOL rule, the failure of their recruiting from other channels becomes a nice olive branch to regulators.

In addition, these firms are guessing that many of the top advisers, though talented and productive, are past their prime and unworthy of lucrative, long-term contracts. Why pay a big free agency contract to the 35-year-old slugger? Most older advisers have clients who are even older than they are. And if you believe that the current bull market is closer to the end than the beginning, why pay a premium for an oil well that is close to empty?

What will happen next?

1. Training new financial advisers is back in a big way.

There are still only three ways for a wealth management firm to grow: increasing the productivity of the existing advisers (“same store sales”), recruiting and training. Increasing same store sales will always be a focus for these firms. Training has fallen out of favor over the last several years because the success ratio of a rookie adviser is somewhere between 10% and 30%. That is, after five years, very few rookies are still with their firm or even still in the industry. Merrill Lynch, Morgan Stanley and UBS will try to populate their offices with skilled trainees anxious to take over an aging adviser’s practice. Will these revamped programs have a better success rate than their predecessors? Will the aging advisers pave the way for a smooth transition to the next generation? We will not know the answers for several years.

(More: Shrinking talent pool puts strain on advisory firms)

2. The rest of the industry will NOT stop recruiting wirehouse advisers.

Smaller firms of all types are reaping the recruiting benefits of being “not a wirehouse.” Their challenge is to continue to feel small even as they grow. Wirehouse advisers are leaving their channel not because they like taking less up front money, but because they are unhappy with complicated compensation plans and stilted bureaucracies.

3. Terms for the payoff for the retiring wirehouse adviser WILL come down.

All firms have plans in place which incent long-term, older advisers to stay with their current firms. These plans were designed with the giant recruiting packages in mind. It is easier to stay than to leave, so firms incent their retiring advisers with a sweet package, enough to ensure a smooth transition, and enough to keep the adviser from moving for a giant package elsewhere. If the monster recruiting packages of 350% are relics of the past, why would a retirement package that was created with that number in mind stay as lucrative?

If you are a wirehouse adviser who has counted a giant recruiting package as part of your net worth, I fear that you need to recalculate. If you truly are ready to quit, I urge you to take the package this year, before your firm adjusts the dollars to reflect the new reality.

(More: Large independent broker-dealers continue to make headway with recruits)

If you are a wirehouse executive who actually cares about your own firm beyond your own next few bonus cycles, I urge you to talk to the advisers you lost to other channels over the last several years and learn why they left. You need to reinvent yourself to once again become a place that advisers want to stay at, or aspire to join.

Otherwise, your dominance will become as much a relic as those giant recruiting packages.

Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.