Heads of giant wealth management concerns continue to see their firms between a rock and a hard place when it comes to recruiting financial advisors, a main pillar of growth in any financial advice organization.
Last week, chief executives of large wealth management companies continued to express concerns over the expense of hiring experienced advisors, which reached a feverish intensity last year in the aftermath of LPL Financial Holdings Inc.’s $2.7 billion all-cash acquisition of rival Commonwealth Financial Network.
That deal set off an industry-wide scrum for Commonwealth advisors, on average the most productive in the industry.
And the rising dollar amount of recruiting bonuses, known as transition assistance in the industry, has remained at levels extremely favorable to financial advisors and potentially costly firms, executives said last week during conference calls to discuss second quarter earnings with analysts.
Financial advisors are paid a recruiting bonus in the form of a forgivable loan or note, which is worked off over a period of years. Such bonuses are based on a financial advisor’s annual revenue, also known as gross dealer concession.
As the size of the bonuses has increased, so has the number of years it takes for an advisor to work it off, leaving some to question the long-run profitability to a firm that gives such bonuses.
“What we see is still some of the deals, the paybacks are as high as eight years on a cash basis, which is crazy because some of them have gotten really aggressive,” said Jim Cracchiolo, Ameriprise Financial Inc. chairman and CEO during a conference call last Thursday. "Even advisors are looking at it knowing that someone is going to pull the wool out from what they get.”
Ameriprise last week said it recruited 79 experienced financial advisors for the three months ending June 30.
And recruiting bonuses are at all-time highs even as many perceive that financial advice functions delivered by artificial intelligence will undermine the role of financial advisors and ultimately damage profitability at large firms.
“Transition packages are elevated and advisor recruiting remains as competitive as I've seen it for experienced trusted financial advisors,” said Ronald J. Kruszewski, chairman and CEO, Stifel Financial Corp., last Wednesday.
“Either the largest wealth management firms in the world are increasing investments into a business that apparently is going away or, as we see it, the industry will continue to evolve with more capable and efficient advisors using AI to benefit their productivity and their clients service,” Kruszewski said.
Meanwhile, firms will continue to recruit experienced financial advisors, regardless of trends like increased dollar amounts or AI.
“Recruiting is not something you turn on and off quarter-to-quarter,” said Paul Shoukry, CEO of Raymond James Financial Inc., last Thursday. “You have to be consistent.”
For the three months ending June 30, Raymond James said it recruited financial advisors in the United States with annual production totaling $156 million and close to $23 billion of client assets.
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