Many ask why big firms and RIAs are getting more aggressive in recruiting and the deals they offer. It is a simple supply and demand question – there aren’t enough high-quality advisors to go around despite the fact firms are acting fast and furious to train younger advisors.
Consider the stats:
A recent Cerulli reports that while 106K (36.8%) of advisors with an estimated $11.9 trillion (38.9%) of assets will be retiring, there were only a net growth of just over 2500 total advisors last year. Rookie advisor failure rates are over 72%1, meaning there are more advisors leaving this industry than coming in, and fewer than that making it past the first 5 years.
That of course remains a question about trust – do clients trust the newbies, even if they have great training and education? The simple fact is many do not have their own reference years in life to know how to advise clients with their most personal of decisions. Covid accelerated the advisor shortage as individual work/life choices became more accentuated and older advisors took the opportunity to retire, leaving a legacy practice or selling their books.
Fifteen-twenty years ago it used to be that there were 8 big wirehouses, but now there are really only 3 remaining due to mass consolidation: Morgan Stanley, UBS, and Wells Fargo. While BofA is still one of the powerhouse banks, Merrill Lynch and the ethos that it was 15 years ago, is evaporating. Former big players like Deutsche Bank, Barclays, Credit Suisse, H&Q, Montgomery Securities, Robertson Stephens, Alex. Brown (2x), Lehman Brothers, and recently First Republic Bank are all trivia questions today, and we are seeing similar accelerated consolidation in all channels, including Boutiques and RIAs.
The race for AUM and fee-based accounts is fierce. Firms salivate over the idea of AUM; the mantra is simple – AUM and ACATs – that’s all that matters at the beginning and end of the day. This has led firms to offer whopping deals, transition funds, and support to attract this very thing along with top advisor talent. 200-250% deals and the norm now is 350% with upwards of 400%, upwards of 200-250% up front. Firms are trying to make advisors stick to them like glue by encouraging teams (or else) as it is harder to break away from a team, pushing lending and banking products, and the fancy bells and whistles big firms offer to seduce – all of course for a premium price without the white glove service – because that is inefficient and not profitable in the firm’s eyes.
The RIA space has been super-hot with advisors plain deciding that they have had enough. How so? As Roger Gershman from The Gershman Group, who counsels advisors on their practices states, “advisors have had it, oftentimes we’re on calls with advisors who just can’t stomach emails being flagged left and right – to simply communicate an instruction is mired in operations and compliance control. Some firms have become way too creepy about oversight, one such firm employs an employee monitoring system that registers biometrics and even what is behind the screen on Zoom’s. Most advisors have to turn their cellular phones over for inspection by the firm.” The question is who wants to live that way?
LPL Financial and other RIA firms such as Creative Planning and Oasic have tried to gobble up firms as fast as they can. In the instance of Creative Planning, management seemingly hasn’t even thought through cultural fit – it goes ahead en masse for two reasons – AUM and fees. Who cares about the details? We saw fit as a constant problem played out for us in 2023 with FRB and JPMorgan Chase, the sale of Goldman Sachs PFM (formerly United Capital) to Creative Planning, and Raymond James fully folding Alex. Brown into the mainframe. The problem is that the perfect marriage for advisors is a combination of feel, fit, and financials or trouble is bound to ensue.
Firms are hell-bent on increasing efficiency through technology but the fear there is that things will become so automated that the practice of wealth management and personal relationships falls through the cracks. Clients often struggle through digital onboarding and advisors are often too busy to figure out how best to walk them through the process. Systems that get too fancy oftentimes become a burden for both advisor and client – this is happening and will likely only get worse with AI integrated into practice management.
The goal is not only to land the right financial deal but to be sure the culture aligns with the advisor and/or team ethos, can it be a comfy home, or will advisors be hawked and raided? A fundamental need for all of us is to feel secure and safe, is that what advisors are feeling at big firms with the ground shifting underneath them, with constant GRID changes, and reductions in the way they’ve always known to do business? Again, or else!
Advisors and clients are more valuable than ever before, with the pool of advisors shrinking, advisors should assess their options now more than ever. Advisors are encouraged to be introspective and to know their worth. A move should be to find a long-lasting home that can go the distance with the advisor’s long-term vision for the practice.
As the Editor of The Gershman Group, a boutique financial services consulting firm, TGG brings expertise in financial analysis, strategic planning, and market research. With a keen eye for detail and a passion for helping businesses navigate complex financial landscapes, TGG delivers insightful, high-quality content to empower informed decisions. Backed by years of industry experience, TGG makes complex topics accessible through clear and compelling communication, shaping the firm’s thought leadership and commitment to excellence in financial services.
