The Penalty Box – financial advisors are opting to escape the big four wire houses now before it is too late.
There have been a record number of top financial advisor teams leaving the big four wire houses for boutique firms or going fully independent themselves. This trend is occurring for a variety of reasons from heavy handed compliance departments to firm protocols and agendas to simply wanting to serve clients in a top notch manner. The trend out of the four biggies will continue as firm practices continue to worsen for advisors and their clients. With that, these firms have been enacting stricter and somewhat draconian practices to keep advisors and assets at the firm, or else. This leaves advisors with a simple question, is it best to stay or get out of the penalty box now before the practices become so extreme that there is no way out.
Currently at Merrill Lynch, “client experience specialist teams” have been put in place to contact and manage the client relationship when an advisor and/or team leaves. The teams have access to all client records and reviews, and promote the investment management services of the firm as well as lending, insurance, credit cards, and more along with six to twelve months and even up to two years of fee waivers. The teams are best regarded as SWAT teams to retain assets, a practice needed only if the existing retention practices of the firm are failing. Advisors are on the move in droves and the advisor-client retention rates when leaving are close to 99-100% not the small fractional figures the big four report.
At Morgan Stanley, bonuses are put in place for select teams with RSU’s for top tier advisors. Should the advisor leave the firm, the incentives must be paid back, along with non-solicitation contingencies, and garden leaves where advisors cannot work for three months after departing the firm. Other scare tactics used by the big four include deferred compensation, contingent benefits, and non-solicitation clauses for up to a year or more. If there is a violation of solicitation practices or any other aspect of a firm-advisor contract, firms have routinely and aggressively fought legal battles against former advisors in court, to believe this wouldn’t occur is folly no matter how advantaged the firm may be in the contract. As always, reviewing the firm-advisor contract with at attorney is a must as well as any addendums or agreements the firms insist advisors sign through time.
What we are seeing now is likely just the beginning of the practices the big four will use to keep assets at the firm given the massive amount of top teams that are leaving. To opt to leave the penalty box now for higher retention of fees, other positive incentives, higher client service, and the freedom to determine the fate of one’s practice may be the only reasonable choice. Roger Gershman of the Gershman Group states, “we are hearing more and more from advisors about the limiting practices of the big four firms, based on the current landscape and conjecture about what firms may do in the future, we’re keen on helping advisors to make a fair assessment of present circumstances with our best ideas on options that will deliver better financial results for advisors and service for their clients. After all, being in this business means that the advisor is the one steering the ship, responsible for bringing in clients and every aspect of the relationship, why should firms get to decide how that narrative should run and penalize advisors for doing their jobs well? Never forget that the big four are fire breathing dragons in it for the firm, not the individual.”
Curious about all the moves and what might be right for your team? For over fifty years, The Gershman Group has served financial advisors considering and making business moves. Headquartered in San Francisco, and serving clients throughout the United States, the team works with the upmost confidentiality to assess your platform and your needs, and can assist you in making moves swiftly. Free consultations are offered, so if interested and to learn more, contact The Gershman Group at (628) 500-7770 or at https://www.thegershmangroup.com.
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.
