In early 2009, three of the four major wirehouses rolled out advisor retention programs. Merrill Lynch, Morgan Stanley Smith Barney and UBS announced that they would provide their most-prized advisors with award packages designed to encourage them not to jump ship.
This was done in response to the 2008 market wipeout, which caused unprecedented broker job hopping. Many advisors fled their wirehouses with damaged reputations both to appease anxious clients and to replenish their own suddenly shrunken net worth.
A spate of mergers and senior management changes had quickly reshaped the wirehouse world. The new firms wanted to give their advisors a compelling reason to stay the course.
Merrill and Morgan Stanley offered $500,000-plus producers upfront packages ranking from 30% to 75% of 2008 gross as well as backend incentives tied to meeting growth hurdles. Backend payments ranged from another 25% to 30% of gross. These were structured as nine-year deals, with upfront bonuses to be paid out in January 2010.
UBS opted to pay its $500,000-plus producers and additional 2-9% of trailing-12-month production. The first six years was paid upfront, with the entire loan forgivable over an eight-year period.
How successful have these awards been in reducing advisor turnover, and are they a reliable long term strategy going forward?
Although retention packages changed the recruiting landscape for the moment, they are unlikely to be as potent as wirehouse executives would like.
One doesn't have to be a math wiz to recognize the considerable spreads between the awards to stay and offers from competing firms.
Upfront deals at major wirehouses now range from 120-140%, with backend incentives that bring total packages potentially up to 200-300%.
Over time, as more of the upfront portion of these deals is forgiven, this spread will only widen.
Retention awards are viewed by many as risk-free and hassle-free money. They've ratcheted up the pain level that prompts a move.
Nonetheless, those advisors who decide to "hit the bid" will always come out way ahead.
As we've written before, broker demographics — the ever-shrinking pool of advisors who control large pools of assets — will keep recruiting deals at stratospheric levels for the foreseeable future.
New firms with aggressive recruiting programs are continuing to come into the marketplace, and we're just at the beginning of the curve.
Still, the retention deals have caused some short-term changes in advisor movement.
