Mindy Diamond: It's the Best Time in Years for Advisors to Switch Firms

Q&A June 13, 2022 at 05:06 PM

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Firms are offering quality advisors transition packages "at real high-water marks. It's a real seller's market" in which financial advisors are "more likely [to] find [their] version of utopia versus five or 10 years ago," Mindy Diamond, a leading financial advisor recruiter, tells ThinkAdvisor in an interview.

Uppermost in the minds of financial advisors seeking to change firms is, apart from the compensation, a strong desire for "freedom and control," the founder and CEO of Diamond Consultants says.

"They want autonomy," she stresses. "They want agency over their business lives."

So are the big firms giving it to them?

"No, not so much," according to Diamond, who explains why in the interview.

She also discusses the expanded options available to advisors looking to leave large firms, including joining "boutiques" that provide more of that wanted freedom and control, as well as increased opportunities for entrepreneurial types to open their own RIAs.

Though some large firms have started to provide financial advisors with advisor and client services similar to those RIAs offer, the wirehouses, worried about "cannibalizing their wealth management unit[s]," aren't following suit, Diamond says.

The recruiter also discusses critical questions advisors should ask a firm they're seriously considering joining, along with her advice on hiring an attorney to represent their interests.

A popular keynote speaker at industry events, such as Pershing's Insite and Schwab Impact, Diamond blogs weekly and hosts the podcast "Mindy Diamond on Independence."

In the interview, she singles out two large firms that are going against the grain in their bid to attract advisors and comments on why more women aren't entering the profession.

Noting that "last year was [her firm's] best year ever," she observes that the coronavirus pandemic, which required most advisors to work from home, made many realize "how little they were actually relying on their branch — the office infrastructure — to be successful" and gave those who were already considering moving the privacy to explore options.

ThinkAdvisor recently interviewed Diamond, who was on the phone from her firm's base in Morristown, New Jersey.

When the conversation pivoted to wirehouses' retire-in-place programs, she called the trend "a pretty powerful force" — "a blessing and a curse."

Here are highlights of the interview:

THINKADVISOR: What's doing in the world of financial advisor recruiting?

MINDY DIAMOND: It's a real seller's market. If you're a quality advisor with a quality book of business, you'll more likely find your version of utopia versus five or 10 years ago.

The seller's market is [largely] being fueled by more competition for top talent. It keeps everybody [who's] bidding on their toes. The deals — the transition packages — being offered are at real high-water marks.

It's a good time to be an advisor.

What are FAs looking for when they decide to move firms?

One of the things that has really changed in the last number of years is the advisor mindset: What they value is very different from what it once was.

It's true generally that advisors want freedom and control more than anything. They want autonomy. They want agency over their business lives, including whether they work from home or go to the office two days a week or whatever [the arrangement].

How does this attitude differ from that of the past?

When I started my business [in 1998], every conversation [with an advisor] started with "What's the deal? How much are they paying?" That was the most important thing.

Of course, the economics are still important. But that's not what anyone leads with.

What's most important is "How am I going to best serve my clients, and will I have the freedom, control and agency over my life to get it done?"

So are the firms willing to give them that control?

No, not so much. In fact, if anything, they're probably giving them less.

Why?

If you're the senior leader of a publicly traded firm, you're responsible for margin expansion, keeping the stock price up, keeping costs low, managing the bottom line.

Those don't necessarily equate with giving advisors more control.

Does that frustrate the advisors?

Yes. When an advisor leaves, nine times out of 10 the number one reason is that they don't feel they have enough control or freedom or aren't feeling the love as much.

They don't have enough of what they want, and they're frustrated.

How does recruiting in 2022 compare with other years?

The industry landscape has expanded a lot. There are more legitimate options for advisors than ever before.

It's certainly [a matter of] considering Merrill [Lynch], Morgan [Stanley], UBS and Wells [Fargo].

But it's also about considering options like Rockefeller [Capital Management] and First Republic [Private Wealth Management], and independence.

So exploration becomes a bigger process, but in a good way.

What are the wirehouses doing to try to stop advisors from leaving and keep their assets under management with the firm?

There's a pretty powerful force that's in play to try to keep them in their seats: The big firms are working hard to tie up as many advisors as possible via retire-in-place programs [transferring business to next gen and monetize in place].

In fact, they're looking to get the advisors tied up as early as possible — sometimes 10 or 20 years before they're ready to retire. And they're paying them a premium to do so.

[The programs are] a blessing and a curse.

How so?

They're a blessing because being able to retire in place without having a disruption [to your business] is a great thing. But one of the downsides is that you lose optionality the more you're tied up.

How are advisors responding to these programs?

For a senior advisor who was inclined to stay put anyway, who is fairly close to retirement, has no issues with their firm, and most importantly, doesn't have a family member that's a next-generation advisor, they're very likely to embrace it.

What about FAs with next-gen advisors in their family?

They're questioning the programs. Binding them for the first 20 years [for example] if they're signing on early, without any sort of escape hatch and making it more expensive or harder for them to leave, probably isn't the best thing.

What do the next-gen FAs think?

A lot of movement these days is driven by the next generation, who's looking at these programs and saying, "There's got to be a better way. I get it that you, Dad — or Mom — have a right to monetize your life's work, but you're handcuffing the business. That's not a good thing."

Is the trend of advisors becoming RIAs or joining other RIAs as strong as it was?

That's the breakaway movement, and it's still a tremendous trend: advisors leaving the traditional firms and going independent. They're looking for more freedom and control.

There are a number of new entrants [to the industry], which we could call boutique firms, that certainly give advisors more freedom and control than they had at Merrill, Morgan or UBS.

And they don't have to build something from scratch, because they're plugging into an already-established infrastructure.

So this is a middle-ground solution. Rockefeller and First Republic are good examples of that.

But it's easier nowadays for an advisor to build their own firm from scratch. Right?

Yes. Part of what's fueling so much of this moving toward independence is that a whole ecosystem has been born to support the entrepreneurial-minded breakaway advisor.

What does it comprise?

There's no shortage of capital providers, outsourcing companies, compliance folks, tech vendors, transition consultants and support people to help them build their company.

So all the things that might have daunted someone from going independent are now available to access.

About 10 years ago, a number of breakaway brokers were enmeshed in FINRA arbitrations, fighting with their former firms over clients and forgivable-loan bonuses. Is that still happening as much?

There's much less of that now because of the Broker Protocol. It's much easier for an advisor to move today than 10 years ago, for sure.

If an advisor is leaving a Protocol firm and joining a Protocol firm, there's almost no likelihood of any sort of legal hassle to follow.

Courts always lean toward protecting the client, and the client has the right to follow the advisor anywhere they like.

Some people I've interviewed say that the wirehouses are trying to be more like RIAs in what they provide advisors. Thoughts?

Certainly at Wells Fargo, that's true. They have an RIA unit. Certainly that's true of Raymond James and Ameriprise.

Many big firms offer multi-channel association models and are moving toward the RIA space.

But firms like Morgan, Merrill and UBS, no. Sure, they're paying attention to this [trend]. But it's not their business model.

They worry about cannibalizing their advisor force and wealth management unit. I just don't see it happening.

But is there anything these firms might take from the RIA playbook?

To know that [what's] most important to advisors is wanting more agency and control.

[The firms] probably would stave off at least some attrition if they found a way to give advisors more of a voice or honor more of their wishes.

The job of financial advisor is promoted as being entrepreneurial. Do you agree?

It's an entrepreneurial profession even if you work for the biggest bureaucracy on the Street.

If you're at a traditional large wealth management firm, you feel larger there — like you own the client — until you go to leave and realize that you've got an army of advisors fighting for your clients, and your old firm is offering the clients free fees for a year because they want to keep the business.

It's always a question of who owns the clients, then?

[Only] one employee-based firm [contractually says] the advisor owns the clients: Raymond James.

Everybody else lets the advisors believe they own the client until the advisor goes to leave, and then they find out how not true that is.

What are questions you suggest advisors ask a firm to which they plan to move?

You need to vet the new firm [concerning] every single thing you do to serve clients to be sure they can be replicated either exactly or with a like-solution that's acceptable to you and your clients.

And there are important questions to ask about the firm's culture, like:

What's your attrition rate? Why do advisors leave your firm? How easy is it if I want to get a piece of communication approved? If I have an issue, who do I go to? How long will it take to get an answer?

And they should always ask to speak to a reference — an advisor there that has a similar business in order to get the advisor perspective of what it's really like to work at that firm.

I've interviewed FAs who have left firms because though the companies promised they would support them with what they needed, they didn't.

Should FAs get such promises in writing before they join?

There's a limit to what most firms will put in writing. You're probably not going to get that in writing.

The problem is that if you get a promise from a manager and three years after you join, they leave, it becomes a "he said/she said" [situation].

What else do you advise FAs do before accepting an offer from another firm?

They need to be represented by their own attorney. The firms say they have attorneys that will walk you through how to be a "good leaver": what you can say to clients and what you can take.

But you should always have your own attorney to represent your personal interests and to review your current and new employment agreements.

They can get what's possible to get in writing.

For years now, older advisors have been leaving the business, but not enough new ones are coming in. Same story now?

There's still probably a lack of new talent, and there's still a succession crisis.

The industry definitely needs more young talent. Merrill Lynch [for one] is figuring out how to solve for it.

They're going after young talent to pair and partner them with the bank to build a whole new generation of young advisor talent, who will be more salary-based and look different than the traditional advisor of a decade or two ago.

How do female FAs stack up against male FAs performance-wise?

The majority of female advisors are incredibly successful. They are some of the best in their markets — in the industry — in the country.

They're natural powerhouses because the best advisors are consultive in nature, and that seems to be in a woman's DNA.

But why aren't more women choosing to become advisors?

"You can't be what you can't see." Women advisors are a very small percentage of the industry. There's a lack of critical mass, and that makes it less likely that other females will join.

There aren't enough women advisors to show proof of concept.

How does the current market decline and worrisome issues about the economy impact an advisor's decision to move firms?

If an advisor is leaving to solve for things that are less than perfect, whether market conditions are good or bad has nothing to do with it.

In [today's] market, if an advisor is discontent because they don't think they're getting the kind of support they need from their firm, they can make the case that one reason they're leaving is to go to a firm that will better support them and their clients.

How has the pandemic affected your recruiting activity?

It was great for business. It accelerated [advisor] discontent and gave people wanting to move more freedom and opportunity to explore that with privacy [working from home].

They realized how little they were actually relying on their branch — the office infrastructure — to be successful.

At the same time, they realized they were still paying more than 50 cents on every dollar to the firm for services they weren't really using.

Just how great was the pandemic for your firm?

We had our biggest year ever last year. Even now, as advisors are going back to the office [part time] or working from home, their car or vacation home, they still have more freedom than they had and more opportunity to explore.

No one should ever feel stuck — like you're staying [at a firm] because of inertia.

If you think where you are is less than perfect, there's lots to talk about.