Wirehouse advisers must feel like they are under siege.
Within their own firms, payouts seem to change annually. Compensation plans are the size of a novelette. More and more compensation is held hostage — "deferred" — in order to keep advisers in place. In 2019, UBS will attach deferred compensation to what one attorney told me is the "best written non-solicit language" he has ever seen. While some advisers have indeed departed without being sued, the new language explicitly forbids the "inform but do not solicit" strategy.
Lacking confidence that advisers will happily stay because UBS and Morgan Stanley are great places to work, lacking confidence that clients are attached to the firm and not the adviser, these firms are pulling out all stops to protect their franchises.
While employee advisers remain free to work anywhere they choose, Morgan Stanley and UBS are taking advantage of the gigantic logistical challenge that moving a large practice entails. The fact is that many, if not most, wirehouse advisers are unwilling to risk their livelihood to move at all.
Logistics alone make it difficult to move — a picket fence, perhaps to climb. But with protocol gone and new legal language on the way, the fence has become barbed and electrified. If leaving becomes more and more challenging, I predict that emboldened firms will keep lowering compensation in order to increase returns to shareholders. What can trapped advisers do to regain their leverage?
Perhaps the time has come for wirehouse advisers to unionize. In an op-ed in The New York Times on Feb. 28, Eric Posner of the University of Chicago and Alan Kreuger of Princeton University warn of the danger of monopsony power: "This term is used by economists to refer to the ability of an employer to suppress wages below the efficient or perfectly competitive level of compensation."
They say that in the United States this is no longer just prevalent with lower-wage occupations but increasingly with more professional, higher-paying jobs. Employers, they say, are increasingly using non-compete agreements and non-poaching agreements to restrict the movement of their employees.
While UBS and Morgan Stanley might argue that their advisers can work where they want, the true effect of preventing advisers from contacting or soliciting their clients is to severely restrict a given adviser's income, to prevent them from competing.
The authors say that historically unions have been a counterbalance to this monopsonistic behavior. Since unions represent only 7% of private sector workers, they say, the authors suggest that either the Justice Department act to help workers or Congress legislate to protect workers. In today's gridlocked world, aggrieved advisers should not hold their breath for a government solution. I suspect that financial advisers inspire very little sympathy from the public or the government.
There are examples of advisers acting in concert to enact change within their organizations. Reportedly, UBS backed off from its 2018 non-solicit language when it heard from angry advisers across the country. Indeed, I believe that had the firm kept the original document intact for this year, its entire franchise would have been at risk because of mass departures.
Wirehouse management: I respectfully suggest that you need to do a better job of balancing the respective interests of clients, employees and shareholders. Suing departing advisers is culture-killing and potentially harms clients. If it harms clients, the regulators will be all over you. If it is bad for your revenue generators, and bad for your clients long term, these actions are terrible for shareholders. I can personally report that the recent actions of both UBS and Morgan Stanley have both scared advisers and angered them. How is a hostile, adversarial relationship good long term for your institutions? There must be a better way.
Wirehouse advisers: Your firms have already created a council of lead advisers from around the country that serves as a sounding board for management. At UBS and Morgan Stanley, were these councils informed in advance of the new "we'll sue you when you leave" strategies? You are the revenue generators of your companies and for the most part have built your businesses yourselves. You are the trusted advisers of families around the country who have shown again and again that they are more loyal to the practitioner than they are to the institution. As I've already shown, acting together you can be instruments of change. If you do not, your firms will continue to make it tougher to leave and pay you less. It's time to push back.
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.