Higher pay and lifestyle benefits put wealth advisors in the driver’s seat

In the scrum of wealth management firms jostling to land talent to manage money, there’s a clear winner: financial advisors.

From better pay to more leeway to make demands for life-friendly benefits and personal perks, advisors are increasingly calling the shots.

Credit the work-life balance revolution sparked during the pandemic and surprising competition from brokerages seen as stodgy and inflexible. Add a decade of explosive growth by advisory firms going independent from Wall Street and a shortfall of younger planners to replace retiring ones. 

“Advisors can say, ‘I’m in the driver’s seat, and you’d better pay premium if I’m to move my book of business,’” said Roger Gershman, CEO of The Gershman Group, a recruiting firm.

The No. 1 reason an advisor quits for a competitor is because he’s unhappy with how much he makes, according to “How to Win the War for Talent,” a new research report from Arizent, the parent company of Financial Planning. The Arizent study surveyed 599 respondents across wealth management, banking, accounting, insurance, mortgage and other industries, including 486 people at senior levels. Nearly one in three of the wealth management respondents, or 28%, said low compensation was the top reason for turnover. 

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“You’ve got to be willing to pay — this is not a time where you can go in cheap,” said Brett Bernstein, the CEO and co-founder of XML Financial Group.

Job hopping by the nation’s roughly 612,000 registered representatives — advisors affiliated with a brokerage — and more than 69,000 investment advisor representatives — those who work for an independent, fee-based firm — hit record levels in 2021. Advisor moves to independent channels rose 2.6 percent last year compared with 2019, according to Financial Advisor Transitions, a consulting firm. Last year, a net 2,065 advisors left Wall Street wirehouses, while 1,225 joined independent broker-dealers and 1,530 went to RIAs. 

The job hopping shows no sign of abating this year, said Louis Diamond, the president of headhunter Diamond Consultants. “Firms face real threats from 50 different competitors,” he said, “so there are many more viable options for an advisor” now compared to recent years.

The wealth management industry’s giant “help wanted” sign comes as it faces a looming shortage of bodies. Almost one in two advisors is older than 50, with nearly one-quarter at least 60, according to the CFP Board. Cerulli Associates says 37% of advisors overseeing 40% of the industry’s total assets will retire within the next 10 years. The timing is terrible: In North America, nearly $11 trillion will shift to heirs over the next decade, with people worth more than $5 million passing on an average $27 million, according to Wealth-X, a data company. Wealth management firms with advisors in place stand to benefit the most from the largest intergenerational transfer of money, known as the Great Wealth Transfer.

Here are two more key findings for financial advisors in the Arizent survey:

The Great Frustration
Advisors aren’t part of the Great Resignation, in which more than 47 million Americans voluntarily have quit their jobs in 2021, the second year of the pandemic and a record for a more-than-decade-long trend, according to the Harvard Business Review. And their concern about burnout is far lower compared with banking, accounting, mortgage and other industries: 29% vs 48%-58%, the Arizent survey found.

Still, wealth management firms are impacted by both trends. The evidence: the No. 2 reason advisors switch firms, according to the Arizent survey, is a lack of support staff and functions, whether administrative, information technology-related, front office or product development. Nearly one in two organizations, or 45%, surveyed have the most trouble retaining HR roles, followed by middle and back-office staff, product development specialists and frontline staff.

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Gershman, a recruiter who works with Wall Street brokerages, said the first factor to drive an advisor away is dissatisfaction with their employer’s business model. If an advisor decides to move to a competitor because the support, back-office and compliance functions in the current platform help “the company first, and the advisor second,” then compensation becomes topic A. 

“If the platform isn’t working, then compensation is the biggest driver to making that move,” said Gershman, whose clients include Morgan Stanley, UBS, regional players like Raymond James and Stifel, and independent broker-dealers like Rockefeller Capital Management. 

Dude, where’s my life?
The third reason advisors leave for a competitor, according to Arizent’s survey, is a lack of flexibility in working from home or remotely. Registered independent advisory firms, or RIAs, are the most accommodating. “People might be on a call while folding laundry, and that’s OK,” said Michael Couck, the director of people and places at Telemus Capital in Southfield, Michigan. “Work is officially integrated with personal life.”

But Wall Street brokerages are showing signs of loosening up. 

“We’ve seen firms become more flexible with recruitment deals and retention bonuses,” Diamond said.

With independent firms the fastest-growing segment of the wealth management industry, according to McKinsey, brokerages are offering perks typically not seen in earlier years.

Some examples: Last fall, Bank of America’s Merrill Lynch switched its compensation model to reflect an advisor’s performance during the last 12 months, rather than during the last calendar year, a change that rewards an advisor’s recent wins. Wall Street’s biggest brokerage has also made it easier for top advisors to get approval to work out of two offices — say, New York and Boca Raton, Florida. 

Not offering that flexibility “is a deal breaker for many recruits,” Diamond said. “Firms have had to become more flexible, and those that never embraced remote work are much more open to an advisor working remotely and out of multiple locations.” 

Commonwealth Financial Network offers recruits forgivable loans that are tied to the total client assets they manage, not to the new business they bring in, according to an article earlier this year on wealthmanagement.com. Cetera Financial Networks and LPL Financial do the same thing. Meanwhile, Wells Fargo and brokerage and investment bank Stifel Nicolaus have launched independent brokerage and advisory channels as a way to curb defections to RIAs. 

“When there are more options for advisors,” Diamond said, “it means firms have to get more creative and aggressive.”