Every quarter, the wealth management industry reports earnings. The media tends to focus on a handful of key metrics, including the number of financial advisers at individual firms. Firms are expected to grow, so a smaller number of advisers, compared with the previous quarter, is “bad” while a larger number is “good.”
Enough deception. It's time for transparency.
That's right, I believe wirehouses fudge their numbers every quarter. To anybody observing from the outside, any registered person can be deemed an “adviser.” Do you know the name of a registered sales assistant or a senior manager at a brokerage firm? Punch their names into
Financial Industry Regulatory Authority Inc.'s BrokerCheck database and they look exactly the same as a real adviser.
This became apparent to me several years ago when an adviser at Morgan Stanley showed me his production report. The report clearly ranked him according to how his individual production compared with the firm's total number of advisers. The adviser pointed out to me that the total number on his report (roughly 13,500) at that moment was far fewer than the number Morgan Stanley was reporting publicly (roughly 18,000).
(Related read: Attrition, breakaways shrink wirehouse head counts)
He had asked his complex director about the disparity. The complex director explained that they counted everyone at the firm who was licensed when giving a total number of advisers. For the purposes of ranking the adviser's production, however, the firm only counted true advisers with more than two years in production.
I have no reason to believe that the other big firms are any more forthcoming about the true number of producers at their firms.
To be sure, the trade press is keeping track of the recruiting wars. Unfortunately, however, most publications are only interested in tracking deals involving advisers with more than $100 million in assets and $1 million in production. Nobody pays close attention when the smaller producers leave.
So when wirehouses say they have fewer advisers, they are able to say that the average production in their attrition numbers is far lower than the average recruited production.
I think it's time to tell the truth.
(Recruiting data: Ranking the biggest adviser moves of 2015 so far)
First, let's give these firms a break. What I mean is that the demographics of the industry and the laws of big numbers tell us that these firms are shrinking. With the average age of a wirehouse adviser approaching 60, it makes sense that more advisers are retiring or dying each year than are joining training programs. So saying that Merrill Lynch or Morgan Stanley lost 150 advisers over a given period of time does not necessarily mean that their franchises are under a recruiting siege or at risk.
But it's time to be more transparent.
What I propose is that every brokerage firm be required to report the attrition of advisers. If Brokerage Firm X is down 125 advisers for a given quarter, I'd like to know how many they hired, how many they recruited and at what production level those new advisers came in at.
Of course, I'd also want to know how many advisers they lost.
Included in that number would be a certain number of advisers who were part of "natural attrition" — that is, ones who retired, died, or left the industry for compliance or personal reasons. I'd also like firms to share the number of advisers who departed to join their competition along with their levels of production.
Only when we see the facts behind the aggregate numbers can we learn what is really happening within these firms. As public companies, aren't they required to disclose information which is material to the health of their franchises?
I, for one, am tired of seeing the quotations from a company spokesman who blandly says after a departure that their firm is above goals and recruiting is “on target.” It's already unfortunate that, according to public statements, nobody ever loses anybody good, or makes a mistake and hires anybody bad. Enough obfuscation.
It's time for transparency. I want to know the truth. Don't you?
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.
