Seeking either to build on or create momentum with potential recruits, three large brokerage networks —
Wells Fargo Advisors,
LPL Financial and Cetera Financial Group — are beginning 2019 with substantial offers to lure brokers and financial advisers to change employers and move their businesses to a new address.
The offers come at a time when the largest, most dominant brokerage firms in the industry, Merrill Lynch, Morgan Stanley and
UBS Financial Services Inc., have recently pulled back on recruiting, which is a costly and risky way of doing business. Instead, the three wirehouses are looking to grow assets internally and trying
to focus their advisers on using technology intended to increase revenues.
As those three giants pull back from recruiting, there's a clear opportunity for other sizable firms to compete for advisers with attractive bonuses, in the form of loans that advisers work off over a period of years.
After bleeding brokers for more than two years, Wells Fargo Advisors is currently dangling one of the most attractive offers on the Street to retail brokers and wealth managers.
The deal, at potentially more than three times an adviser's annual fees and commissions, known as the trailing 12 in the industry, hearkens back to a decade ago after the financial crisis when large wirehouses were offering top dollar to convince advisers to jump ship.
The deal, traditionally worked off over 10 years, is available to brokers and advisers who generate more than $500,000 in annual fees and commissions. It is split into two parts: an upfront payment and then another payment over time based on the percentage of client assets the adviser eventually moves from his former employer to Wells Fargo.
The upfront part of the bonus is worth 225% of an adviser's trailing 12, with the lion's share in a loan and the rest in deferred compensation. The remainder, potentially worth another 100% of an adviser's prior year's fees and commissions, depends on the amount of client assets that move from the old employer to Wells Fargo Advisors. To earn that maximum, an adviser needs to transfer all clients and assets.
I asked a spokesperson for Wells Fargo Advisors, Shea Leordeanu, whether the firm's decision to up the ante for recruits was a response to the net decline of close to 1,100 advisers the firm has seen since September 2016. That's when its parent, the giant bank Wells Fargo & Co., began to reveal a series of embarrassing scandals.
"We want to hire the best, most client-focused advisers," Ms. Leordeanu said.
Meanwhile, LPL Financial
last spring introduced a tantalizing recruiting package in the form of a three-year forgivable loan that pays an adviser 50 basis points on assets under management transferred to the firm. It was a break with tradition and potentially much more lucrative than deals in the past. IBDs such as LPL customarily paid recruiting bonuses based on a percentage of a broker's trailing 12, not assets.
LPL's new deal apparently worked.
Last week, the firm said the third and fourth quarters of 2018 were its best recruiting quarters on record. For the year, the firm gained a net 899 advisers with $27.3 billion in brokerage and advisory assets.
Look for LPL to employ a similar recruiting strategy this year, one executive said in an interview this week.
"It was very successful," said Richard Steinmeier, managing director and head of business development. "We've kept elements of that in play. And it wasn't just the 50 basis points. It was simplifying the offering and the payout."
"We will likely not only continue but evolve that into sets of offers, not just one," added Mr. Steinmeier,
who joined LPL from UBS in the second half of 2018.
Cetera Financial Group, one of LPL's key competitors, is taking note. Robert Moore, the CEO of the brokerage network and a former senior executive at LPL, said in a phone interview this week that the firm would offer certain recruits 70 basis points on advisory assets that move to the firm — an eye-popping amount — and 35 basis points on brokerage assets.
Those deals would be in the form of a forgivable note or loan that would span five to seven years, or roughly twice as long as the typical recruiting package, he said.
"It's basis points on assets, and brokerage versus advisory," Mr. Moore said. "We just went into the market last week with the new, revised set of terms that are better than LPL's deal."
Cetera recruited about 600 new advisers in 2018, but many of them generated on the lower end of annual fees and revenues, he said. It added another 200 new advisers at various banks, credit unions and tax preparers that work with Cetera Financial broker-dealers.
Big Wall Street wealth management firms have turned away from recruiting and are working to hang onto as many of their current advisers as possible. Others, including Wells Fargo, LPL and Cetera, continue to pay bonuses for experienced brokers. Which strategy will prevail over the next 12 months?
