The publication in late April of a final Federal Trade Commission rule banning most non-compete agreements nationwide sparked debate across a variety of industries where the use of such covenants is common — especially in professional and financial services.
According to one Federal Reserve Bank estimate, nearly one in five workers in the financial services industry report that they have signed a non-compete agreement — far higher than the prevalence reported in industries like construction, education or public administration.
This has led to lots of discussion about the final FTC rule among the wealth management and retirement advisor industries, now seeing high levels of recruiting competition and acquisition activity, and a key thought is that the voiding of many non-compete agreements and the ban on new agreements — even for senior leaders — could supercharge this existing trend and result in even higher levels of advisor movement across firms and channels.
That seems like a reasonable assumption on its face, but in the experience of Jason Diamond, a recruiter and M&A consultant at Diamond Consultants, a lot of the discussion about this potential disruption misses a few key points. Perhaps most important is the fact that many of the advisors and teams who are moving today actually aren't subject to non-compete agreements.
"For example, my understanding is that most wirehouse advisors don't have non-competes in place," Diamond said. "Fro the private bank advisors, it's more common to have garden leave arrangements in place. A lot of advisors may be subject to non-solicitation agreements, yes, but that's a very different animal from an outright non-compete."
The Current State of Play
First asked to assess the state of advisor recruiting and acquisition activity seen so far in 2024, Diamond said there is "still definitely a lot of movement going on," even if the level of activity has fallen off from the record highs of recent years.
"I can tell you from where I sit that this is still a busy time in recruiting and the M&A market," Diamond said. "We haven't seen anything like a big pullback on either front, which some people had expected against a more uncertain market backdrop.
"What's interesting and cool about the movement today is that it's coming form all corners of the industry — from the wirehouses to the RIAs to the regional firms. Every corner of the industry has seen both winners and losers," he explained.
This a good thing for advisors and consumers alike, according to Diamond, as it means advisors are feeling empowered to find a good fit for their evolving practices. It's also driving firm leaders to be more responsive to their advisors and to reinvest in their services and capabilities in order to protect their business.
A Wait-and-See Moment
On the issue of the FTC's final rule, Diamond said he is still in a "wait-and-see mode," as the rule is almost certain to face legal challenges, and its long-term future and enforcement could be affected by future political or policy changes. Still, he doesn't expect a dramatic turn of events once the FTC rule takes effect later this summer.
"Again, when it comes to the big wirehouse teams that get a lot of attention when they move, the fact is that non-solicitation agreements are much more common," Diamond said. "Almost every contract has one of these built in."
Diamond said his anecdotal experience is that non-compete agreements do seem to be more common in the employee-advisor RIA space, suggesting this pocket of the industry could theoretically see accelerated movement.
